Thursday, November 25, 2004

"Stigmatized Property" - Arizona Specific Laws

Arizona’s Stigmatized
Property Law

In 1995, the Arizona Legislature enacted A.R.S. §32-2156, Arizona’s first stigmatized property law. This law provides that sellers, landlords and real estate licensees have no duty to disclose to buyers or tenants that (1) a person has died on
the property (whether by natural death, suicide or homicide); (2) a felony has been committed on the property; (3) the property is or has been owned or occupied by a
person who has AIDS or is HIV-positive, or has 'any other disease that is not known to be transmitted through common occupancy of real estate;' and (4) the property is
located in the vicinity of a sex offender (added in 1997).

The statute does not prohibit a seller or broker from disclosing such facts, rather the statute provides that if such facts are not disclosed by a seller or a broker, then no criminal, civil or administrative action may be brought against such person. The statute protects those persons from “failing to disclose”such facts, and apparently the statute does not necessarily protect a seller or real estate broker from making an affirmative misrepresentation concerning crimes or deaths on the property.

Originally, the legislature inadvertently placed language in the statute which
limited this protection to only those brokers acting on behalf of the seller or
landlord, which arguably excluded buyer’s brokers and possibly dual agents. The law
was amended in 1996 to include equal protection for buyer’s agents. In 1997, the
Arizona Legislature amended the stigmatized property statute to include whether the
property is located in the vicinity of a sex offender. Somewhat surprisingly, this
seemingly controversial change in the law went practically unnoticed. Therefore,
since 1997, a broker would not be legally required to disclose the fact, even if
known to the broker, that the subject property is located next to a property
occupied by a sex offender.

Stigmas Not Covered by the Statute

Whether a real estate broker must disclose information to a buyer relating to facts that may psychologically impact a property has been an issue of much debate in Arizona. As explained above,the Arizona Legislature enacted a law in 1995 which resolves the disclosure requirements for many of the stigma issues. But the statute
does not address all possible stigmas. The first reported court case to
address the stigma issue occurred in the case of Reed v. King, 145 Cal.App.3d 261, 193 Cal.Rptr. 130 (Cal. App. 1983) where the California Court of Appeals held that a buyer of a home may recover damages for the non-disclosure of the fact that there
had been a multiple murder in the house 10 years earlier. The Reed court held that if the buyer could prove that the murders had a “significant and measurable
effect on the market value,”and that the seller and his agent were aware
of this effect, the seller and the agent had a duty to disclose even though
the character of the information affecting the market value of the house was merely psychological. In response to the Reed v. King case, in 1987 California became the
first state to enact legislation concerning stigmatized property. Following the lead of California, many other states including Arizona have since enacted similar
legislation. Although it is now clear under Arizona law that the murders in the
Reed case would not have to be disclosed, the analysis of the murder case could apply to other types of stigmas.

The Arizona Department of Real Estate Commissioner’s Rules require a broker to disclose to a potential buyer in writing any information which the broker possesses which “materially and adversely” affects the consideration the buyer would pay.
Similarly, the common law developed by the courts essentially requires the broker to disclose to the buyer all material facts about the property known to the broker.
The items required to be disclosed may include “material facts”which are purely subjective and do not affect any physical condition of the property such as "stigmas” associated with the property. Those items which are not specifically protected by the stigmatized property statute may still be required to be disclosed.

A summary of the current disclosure requirements follows:

Death on the Property
The occurrence of a recent death on a property, such as a murder or suicide, may create a significant “stigma”against the property. Regardless, under Arizona’s stigmatized property statute, a seller, landlord or broker is not required to make any such disclosure, even if such fact is known. Once again, the law does not require the broker to remain silent, and a broker representing a buyer would certainly be free to make a full disclosure to the broker’s client
as to all stigmas, except that an occupant has AIDS.

Previous Occupant with HIV or AIDS

Even before the enactment of Arizona’s stigmatized property law, a broker’s disclosure that a previous occupant of a property was HIV positive or had AIDS would violate the Federal Fair Housing Act, which has protected “handicapped persons”since 1989. Even though there is still a portion of the public which has fears about
purchasing property previously occupied by a person infected with AIDS (which may arguably decrease the value of the home), under Arizona’s stigmatized property law
the broker is fully protected by not making any such disclosure.

Crime in the Area
The stigmatized property law protects the broker only from failing to disclose crime occurring on the subject property. Thus, an argument can be made that a broker is still required to disclose the broker’s knowledge of the existence of criminal activity involving the surrounding neighborhood, especially violent crimes. It still remains very much a grey area, and whether disclosure is required may depend on the type of crime, how recent it occurred, the type of neighborhood, and the type of persons purchasing the home.

Environmental Stigmas

Arizona’s stigmatized property law does not eliminate a broker’s duty to disclose environmental stigmas or the possibility the property is contaminated. For example, if the home is known to have had a meth lab, although the crime does not have to be disclosed per the statute, the possibility of environmental contamination must be disclosed. Obviously, if a broker knows of actual environmental contamination,
this must be disclosed.

The foregoing material has been exerpted from various sources and is presented here for general informational purposes, only. Many of Arizona's "stigmatized property" laws are still open to legal interpretation. If you believe you own or believe you may be buying "stigmatized property", consult an attorney or experienced Real Estate broker/agent for advice and resources.

Read Part I