New York's Property Condition Disclosure Act: Extensive Loopholes Leave Buyers and Sellers of Residential Real Property Governed by the Common Law

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INTRODUCTION

What good is a car without a motor or a house without a roof? Consider a hawk without its razor-sharp beak or a shark without teeth. Because each part is essential to the operation of the whole, one concludes, "the whole is greater than the sum of its parts."1 Whether it is a personal asset or a predatory animal, none of these entities can serve its intended purpose if it is not properly equipped. The shark and the hawk cannot hunt; the car cannot move; the house cannot shelter. Only because the parts co-exist and complement each other can the entity function. Without this fundamental balance, the whole cannot serve its purpose--take away one or more parts and the whole fails miserably.

The New York Property Condition Disclosure Act (the "Act"),2 which went into effect on March 1, 2002, is unfortunately failing as a whole. This new law, requiring sellers of residential real estate to complete and deliver a forty-eight question disclosure statement to buyers, is riddled with loopholes because it is missing many parts.3 The New York legislature asserted that the buying and selling of residential homes is "complicated by misunderstandings arising from an ad hoc transfer process and conflicting information."4 It therefore presented this statute as a "mechanism intended to increase [buyers' and sellers'] ability to obtain information concerning a home purchase and sale."5 In its current form, however, it is doubtful that sellers in New York will ever provide the disclosure statement, and in the event that they do, it is unlikely to facilitate an improvement in the information transfer. Although the intent was noble, the instrument is feeble.

Part I of this Note begins with an overview of caveat emptor, New York's traditional rule regarding the transfer of real estate. It then presents New York's common law exceptions to this rule, the nationwide policy favoring disclosure legislation, and the drive for legislation within New York. Part II examines the inherent problems that cause New York's legislation as a whole to fail in its objective. This examination is facilitated by a nationwide survey comparing similar legislation in all states that have such laws.6 A close look at the varying legislation reveals where New York failed to adopt effective provisions used by other states and, conversely, where shortcomings by other states were recognized, but not corrected, by New York.

This Note affirms the proposition that the loopholes in the legislation impair its effectiveness as a means of increasing buyers' and sellers' "ability to obtain information concerning a [residential transaction and eliminate] misunderstandings arising from an ad hoc transfer process."7 At most, New York's legislation only eliminates the risk of liability on the part of brokers who, arguably, are in the best position to inspect the premises, discover defects, and make disclosures to purchasers.8 Some critical changes can potentially give this statute some bite; nevertheless, in its current form, the common law will inevitably control.

I. BACKGROUND

A. An Overview of Caveat Emptor

Traditionally, the Latin phrase "caveat emptor" has been interpreted to mean "let the buyer beware."9 It is an ancient maxim that places the risks of dealing at arm's length completely within the realm of a buyer, "summariz[ing] the rule that a purchaser must examine, judge, and test for himself."10 With regard to real estate, it is "shorthand for a rubric of affirmative legal defenses . . . available to sellers of real property to effectively thwart claims by disappointed purchasers."11 While contemporary courts' employment of the maxim predominantly surfaces in real estate cases, many scholars recognize its origins in an early English case dealing with the sale of a jewel.12 Though it may be difficult to extract the origins of caveat emptor from the English court's comprehensive discussion of fraud and warranty claims, scholarly interpretations have confirmed the theory. …