Seller Liability for Failure to Disclose Defective Conditions in House

On this page we will look at when a seller in a residential real estate sale can be liable for defective conditions on the property that they did not disclose to the buyer. Our real estate lawyers encounter this scenario all the time. The buyers move into their new house after closing and find all sorts of problems and things that need to be fixed on the property (e.g., broken heat pump, leaky pipes, basement flooding, electrical issues, etc.) None of these things were disclosed to them before they bought the house, so the question is can they sue the seller(s) for the cost of the repairs?

In most cases, the answer is no. Sellers have limited liability for non-disclosed defects or property conditions. However, there are certain situations where the sellers can be held liable. Also, buyers who had a home inspection done prior to closing might be able to sue the home inspector for negligently failing to identify the problems.

Sellers Must Disclose “Latent Defects”

Even when the sale contracts states that the house is being sold “as is,” sellers of residential real property have a duty under Maryland law to disclose “latent defects” in the property, but ONLY if 3 conditions exist: (a) the seller had “actual knowledge” of the latent defect, and (b) the defect is not something that the buyer or a home inspector would reasonably be able to discover during a walk-through inspection of the property, and (c) the defect is something that would be a health or safety hazard to anyone occupying the property.

The standard residential real estate sale contract and related forms that are used by Maryland Realtors, include a standard seller disclosure form called the Maryland Residential Property Disclosure and Disclaimer Statement (the “Disclosure Statement”). The Disclosure Statement is required by Maryland law in all sales of existing residential real property. This requirements are set forth in the Maryland Real Property Article at Md. Code Ann., Real Prop. § 10-702. The statute (and the Disclosure Statement) gives sellers 2 options:

• Complete the Disclosure Statement Section: Sellers are supposed to complete the Disclosure Statement section of the form if they are telling the buyers about certain defective conditions on the property (e.g., roof leaks, foundation issues, etc.). If the sellers complete this form and the buyers sign the sale contract anyways, then the buyers will be barred from later trying to back out based on any conditions disclosed in the form. For example, if the sellers disclose a leaky roof in the form, the buyers will not be able to back out of the deal if their home inspection later reveals that the roof is leaky.
• Complete the Disclaimer Statement Section: If the property is being sold “AS IS” then the sellers would elect option 2, which is the Property Disclaimer Statement. This section of the form only requires sellers to disclose “latent defects” as defined under the statute. Latent defects that need to be disclosed here are defects that are: (a) known to the sellers, (b) would not be discovered during a home inspection, and (c) present a health a safety hazard.

Most residential real estate sales in today’s market as sold “as is” so sellers complete the Disclaimer Section.

What Are “Latent Defects” That Sellers Must Disclose?

As explained above, Maryland law only requires sellers of residential real property to disclose “latent defects.” Latent defects are conditions that: (a) the sellers have actual knowledge of, (b) would not be found during a home inspection, and (c) create health or safety hazards. This is a very narrow definition. When you simply read the definition, it is hard to envision anything that would be a latent defect. Juries and the courts, however, tend to interpret the concept of “latent defect” much more broadly.

For example, in Axe Props. & Mgmt., LLC v. Merriman, 261 Md. App. 1 (2024) water penetration through the basement foundation of flip house was considered a latent defect that the sellers failed to disclose. Part of the story in this case was that the contractors for the sellers made an effort to conceal the water issue. There was a real question here whether this was something that should have been discovered on inspection, but a jury in P.G. County found that it was a latent defect and held the sellers liable. In a similar case in Baltimore County, a property’s history of flooding and mositure issues in the basement were considered latent defects.