Is seller’s intended refusal to sign a deed a material fact?

QUESTION:  I listed a property for sale that is owned by four siblings. All four of the siblings and their spouses signed the listing agreement. An offer was received several weeks ago and, after some negotiation, all four siblings and their spouses signed a contract agreeing to sell the property. We are still in the due diligence period and the buyer is still investigating the property. One of the siblings (I’ll call him Joe) just called to tell me that he is upset with the other sellers and that he does not intend to sign a deed to the property. Is Joe’s stated intention a material fact that I need to disclose to the buyer?

ANSWER:  Clearly, Joe has time to change his mind prior to Settlement and sign a deed. For this reason, there is an argument that Joe’s stated intention is somehow different from other types of existing facts. In our view, this argument is not persuasive. The information you have received from Joe is a fact, and it is sufficiently material that you need to promptly disclose it to not only to the buyer but to Joe’s siblings

The North Carolina Real Estate Commission has identified three categories of facts that must be disclosed to all parties if a licensed agent has knowledge of those facts: (1) facts about the property itself, (2) facts that relate directly to the property, and (3) facts that relate directly to the ability of a principal to complete the transaction.

In its Real Estate Manual, the North Carolina Real Estate Commission gives several examples of “facts that relate directly to the ability of a principal to complete the transaction”. One such example is the seller’s inability to convey clear title.

Virtually all real estate contracts require the seller to execute and deliver to the buyer a General Warranty Deed  conveying fee simple marketable and insurable title (see paragraph 8(g) of Standard Form 2-T). Your clients will not be able to meet this obligation unless all four siblings (and their spouses) sign the deed. Since you now have information that calls into serious question the ability of your principals to complete the transaction, you should promptly disclose that information to the buyer and to your own clients.