Sellers Required by Law to Provide Two Disclosure Statements to Buyers

By Elizabeth W. Penney, Information Officer

Brokers know that most sellers of residential property are required by law to give the buyer two disclosure forms: the Residential Property and Owners’ Association Statement (RPOADS) and the Mineral and Oil and Gas Rights Mandatory Disclosure Statement (MOGS).

The four-page RPOADS form should be given prior to an offer to purchase. The seller has the option of answering each question “yes’, “no,” or “no representation.” Thus, while it is a mandatory disclosure form, it does not actually mandate any disclosure because of the “no representation” option. Sellers who choose to answer the questions “yes” or “no” should do so honestly, based on their actual knowledge as a seller can be held accountable in a court of law for the truth and accuracy of the representations made.

Sellers and brokers should understand that regardless of the seller’s decision to disclose issues and defects concerning the property, a broker must disclose any material facts to a prospective buyer. If a home inspection reveals a significant defect and the seller refuses to repair, that defect becomes a material fact which the agent has discovered and must disclose affirmatively to prospective buyers.

If the seller originally answered any of the relevant questions “no”, then the broker should also advise the seller-client to amend the RPOADS once a defect becomes known to avoid charges of misrepresentation and fraud. If the seller decides not to disclose, the seller still has the option of “no representation” but, again, the broker still must disclose the known material fact separately from the RPOADS.

Failure to provide the RPOADS can have consequences. The statement should be provided to a prospective buyer prior to the buyer making an offer. A seller or listing agent who fails to present a completed statement prior to an offer being extended opens the door to the possibility of the buyer rescinding the contract within either three days of contract formation or three days from receipt of the statement, whichever occurs first. It is the listing agent’s duty to inform seller-clients of their rights and obligations regarding the completion and distribution of this mandatory form.

Additionally, sellers of residential property are now required by law to give the buyer the single-page MOGS form prior to the Offer to Purchase. The seller has the option to mark “no representation” only as to the severance of mineral or oil and gas rights by a previous owner.

It is important to note that the fact the property is investment property and has not been owner-occupied does not negate the obligation of the seller to provide a disclosure statement to prospective buyers. When in doubt as to whether the RPOADS or MOGS must be given in a certain transaction, sellers should contact the Commission or err on the side of caution and provide the Statement.


Exemptions to Providing RPOADS/MOGS Disclosure Forms

North Carolina state law (General Statute Chapter 47E) requires that the RPOADS/MOGS be given in all transfers of residential one-to-four unit dwellings by sale, exchange, installment land sales contract or option to purchase, subject to a few very narrow exceptions in  NCGS § 47E-2 as shown below:

NCGS § 47E-2 (a)… [RPOADS/MOGS exemptions]

(1)  Transfers pursuant to court order, including transfers ordered by a court in administration of an estate, transfers pursuant to a writ of execution, transfers by foreclosure sale, transfers by a trustee in bankruptcy, transfers by eminent domain, and transfers resulting from a decree for specific performance.

(2)  Transfers to a beneficiary from the grantor or his successor in interest in a deed of trust, or to a mortgagee from the mortgagor or his successor in interest in a mortgage, if the indebtedness is in default; transfers by a trustee under a deed of trust or a mortgagee under a mortgage, if the indebtedness is in default; transfers by a trustee under a deed of trust or a mortgagee under a mortgage pursuant to a foreclosure sale, or transfers by a beneficiary under a deed of trust, who has acquired the real property at a sale conducted pursuant to a foreclosure sale under a deed of trust.

(3) Transfers by a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust.

(4) Transfers from one or more co owners solely to one or more other co owners.

(5)  Transfers made solely to a spouse or a person or persons in the lineal line of consanguinity of one or more transferors.

(6)   Transfers between spouses resulting from a decree of divorce or a distribution pursuant to Chapter 50 of the General Statutes or comparable provision of another state.

(7)  Transfers made by virtue of the record owner’s failure to pay any federal, State, or local taxes.

(8)  Transfers to or from the State or any political subdivision of the State.

NCGS § 47E-2 (b)… [Additional RPOADS exemptions]

(1)  Transfers involving the first sale of a dwelling never inhabited.

(2)  Lease with option to purchase contracts where the lessee occupies or intends to occupy the dwelling.

(3)   Transfers between parties when both parties agree not to complete [the RPOADS].

This article came from the October 2018-Vol49-2 edition of the bulletin.