By Robert S. Kutner, Esq., Partner Castner & Edwards
In light of recent developments at Penn State University, the issue of sex offenders has once again become front-page news. When a broker suspects that a sex offender may be living or working near a property being marketed, the REALTOR® is faced with an obvious dilemma.
Is the agent legally required to disclose that possibility to a prospective buyer, so the buyer can make an informed decision whether to purchase? Does a buyer’s agent have a duty to investigate by checking the online registry or contacting the police department? What about the listing agent’s fiduciary duty to act in the seller’s best interest? How does the offender’s distance from the property affect the agent’s duties? Compounding the situation is a question of morality. Is it ethical to remain silent if speaking out could avoid significant harm?
No Bright Line Test
Unfortunately, no statute or court decision provides a bright line test. The Massachusetts Consumer Protection Act, Chapter 93A, requires that a person acting in trade or commerce disclose to a prospective buyer any “fact” that may influence the buyer’s decision to purchase. Possibilities are not facts. When a “fact” involves a non-physical offsite hazard, what is the duty of disclosure? What if the alleged sex offender has not been convicted? Whether or not the person was convicted, the offender could move tomorrow.
Although there is no clear rule, a 1997 decision of the Supreme Judicial Court (SJC), Urman v. South Boston Savings Bank, concerning disclosure of chemical hazards offers guidance concerning disclosure of off-site conditions. In Urman, the buyer of a condominium sued the seller for not disclosing nearby contamination of groundwater. Prior to purchase, the buyer was not advised of contamination in the school’s groundwater or that the school had been closed for seven months. When he learned of the contamination and school closing, the buyer sued the seller (bank).
Before trial, the judge dismissed the case ruling that the bank had no duty to disclose facts of which it had no actual knowledge and no duty to investigate. No evidence existed that the groundwater had reached the condominium or ever would reach it. The judge also based his decision on a finding that the buyer had presented no admissible evidence that the market value of any home in the neighborhood was adversely affected by the groundwater contamination or no justification to assert a claim that they had bought into a “bad neighborhood.”
Upon appeal, the SJC affirmed dismissal. According to the Court, the disclosure standard is: In appropriate circumstances, offsite physical conditions, known to a seller who is subject to G.L. c. 93A, may require disclosure if the conditions are “unknown and not readily observable by the buyer [and] if the existence of those conditions is of sufficient materiality to affect the habitability, use, or enjoyment of the property and, therefore, render the property substantially less desirable or valuable to the objectively reasonable buyer.”
The SJC also quoted from a 1995 New Jersey case, Strawn v. Canuso, that found no need to disclose “transient social conditions,” limiting the duty to disclose to “conditions rooted in the land.” The fact that a sex offender may live or work nearby is a “transient social condition,” since the offender may move next week or next month.
Risk of a Claim
Despite the reasons that disclosure about a sex offender may not be legally required, should an assault occur, there is a risk that a claim will be asserted against the broker or the seller. This risk can be avoided if disclosure is made. Because doing so may impact a sale, the best practice is for the listing agent to discuss the situation with the seller to obtain approval before disclosure to avoid a claim for breach of fiduciary duty. Absent seller authorization, the agent must choose whether to accept the listing.
One method for a buyer’s agent to limit the risk is to describe the limits of the agent’s duties in a written agency agreement. It is advisable that the agent present properties that meet the buyer’s criteria, but the buyer is obliged to investigate all matters relating to the property that are important to them. These include obtaining a home inspection, lead paint inspection, or insect inspection to determine the condition of the property; to verify zoning; to determine square footage and to obtain a survey; to check the quality of the schools and to check crime statistics, including the presence of sex offenders. MAR’s MassForms Exclusive Buyer Agency Agreement contains such a limiting provision.
The state’s sex offender registry law provides specific information online. Sex offenders convicted or released within the past 20 years are required to register annually, identifying their residences, workplaces, and crimes. The Mass. Sex Offender Registry Board maintains the information available from local police departments. To obtain information, the person making the request must certify that the purpose is for his/her own protection or for the protection of child under the age of 18 or for he protection of another person or whom the requesting person as responsibility, care, or custody. Real estate agents, even those who represent buyers, are not authorized statutorily to obtain information for clients.
Once an agent learns as a fact that a sex offender lives near a particular property there is an increased risk to an office. Actual knowledge of the agent is legally presumed to be known by the broker with whom the agent is associated. Once the broker (company) is charged with knowing that fact, failure to disclose that knowledge in all other transactions near to the offender’s residence or workplace could provide a basis for a lawsuit. That lawsuit could be asserted by a buyer who claims that the property purchased is worth less than the buyer paid or by an occupant who is harmed by the sex offender.
Should the agent obtain knowledge and make the decision to disclose it to a buyer, the agent should be careful to avoid defamation by identifying the offender. The better procedure is to make disclosure by street or block and advise the buyer to contact the local police department for specific information about registered sex offenders in a particular neighborhood.
As a final note of caution, it is important to have general liability insurance as well as errors and omissions (professional liability) insurance. Unlike general liability policies, most E&O policies exclude coverage for bodily injury claims.