Must a Bank Owner Provide a Disclosure Statement?

QUESTION: I have a listing on a bank-owned property. My client knows next to nothing about the property and is reluctant to complete the State of North Carolina Residential Property and Owners’ Association Disclosure Statement. I know that, with some exceptions, all owners of residential real estate must furnish purchasers with that Statement. However, my understanding is that are exemptions provided for by statute and that all REO properties are exempt. Is that correct?

ANSWER: No. The exemption is not that broad. However, you are correct on several things. First, North Carolina’s Residential Property Disclosure Act does apply to the sale of all residential real property consisting of one to four dwelling units. You are also correct that the Act contains a number of exemptions. Among them is an exemption for certain transfers made by or to a lender who holds a mortgage or deed of trust. The important thing to remember is that not all such lender-related transfers are exempt.

The lender exemption DOES cover transfers by a lender if the lender acquired the subject property pursuant to a foreclosure sale. However, if the lender received a deed to the property directly from its borrower in lieu of a foreclosure proceeding, the exemption does not apply and the lender must provide a Disclosure Statement to a subsequent purchaser.

The bottom line is that before you advise your lender-client that it does not have to complete a Disclosure Statement, be sure to find out how your client obtained title to the property.