You fought the builder and won. Now that you are ready to sell, here is why “over-disclosure” is your best defense.
For many of our clients, resolving a construction defect case is the closing of a painful chapter. You have endured inspections, depositions, negotiations and possibly even a trial or arbitration to finally hold your builder accountable. Now, or many years later, you may be ready to sell your home and move on.
But before you put that “For Sale” sign in the yard, you need to understand how your lawsuit changes your obligations as a seller.
In Colorado, the law requires sellers to disclose “adverse material facts” known by the seller. The failure to do so may result in legal liability. Because you have been through a construction defect case, your legal burden is unique: You have undeniable “actual knowledge” of the home’s history. You cannot credibly claim ignorance.
Below are some general concepts of how to navigate the disclosures, handle your expert reports, and sell your home without fear of a future claim coming back to haunt you. However, this is not specific legal advice for your situation. If you are selling a home with a history of construction defects, you should consult with a qualified real estate attorney such as Johnson Law regarding your specific disclosure obligations
1. The “Actual Knowledge” Standard
In a standard real estate transaction, sellers often check “Do Not Know” on disclosure forms because they genuinely aren’t aware of the soil conditions or the waterproofing behind the stucco.
You do not have that luxury.
Through the litigation process, your team and forensic experts provided you and/or your attorneys with detailed reports regarding the condition of your home. Even if you did not read the reports or have them in your possession, your attorney’s knowledge may be imputed to you under Colorado law. Nielson v. Scott, 53 P.3d 777, 780 (Colo. App. 2002). Therefore, under Colorado law, if your attorneys that represented you in the construction defect claim know it, you possess “actual knowledge” of these defects. If you fail to disclose them, a future buyer could accuse you of fraud or nondisclosure, potentially unwinding the sale or suing you for damages, along with costs and attorney fees.
2. The Trap of “Ever Existing” in the SPD
The standard Colorado Seller’s Property Disclosure (SPD) form contains a critical phrase in almost every section: “If you know of any of the following ‘EVER EXISTING’ check the ‘Yes’ column.”
Many sellers make the mistake of thinking, “Well, we used the settlement money to fix the roof, so the leak doesn’t exist anymore.” They check “No.”
This is a dangerous mistake. Even if the defect has been perfectly repaired, the fact that it “ever existed” must be disclosed.
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- Did the roof leak? Check Yes.
- Was there soil movement? Check Yes.
- Was there moisture and/or a water problem? Check Yes.
- Were there any structural issues? Check Yes.
- Was there cracking, heaving, or settling (of any part of the home)? Check Yes.
In the “Comments” section, you can (and should) explain that the issue was the subject of a claim and was subsequently repaired. But you must acknowledge the history.
3. The “Stack of Reports”: Disclose It All
During your case, your legal team likely utilized reports from forensic engineers, architects, and contractors to prove the defects existed. These reports are comprehensive and, frankly, can look scary to a buyer.
You might be tempted to hide them. Do not do this.
If a buyer discovers these reports after the sale—and they usually will, often through neighbors or public records—they can claim you hid material facts. The safest legal strategy is to disclose “all expert reporting” associated with your case.
Our recommendation:
Provide the reports as part of your disclosure documents. By handing over the “bad news” upfront, you shift the burden to the buyer. You are essentially saying, “Here is everything we know about the house. Review it and make your own decision.”
This acts as a shield. It is very difficult for a buyer to sue you later for defects they say were not sufficiently disclosed when you handed them a 150-page report about those same defects.
4. What About the Repairs?
If you performed repairs using your settlement funds, disclose those too. Provide invoices, permits, and contractor warranties. This shows the buyer that while the home “had” issues (as detailed in the expert reports), you took responsible steps to address them. In many neighborhoods with lots of soils and foundation concerns, the fact that you already addressed the issues and have a warranty could be a great selling point.
5. The Bottom Line
In real estate, silence is liability. Transparency is protection. You fought hard to protect your investment during the construction defect claim, lawsuit, or arbitration. Don’t risk that victory by cutting corners on your sales disclosures. When in doubt, disclose more, not less.
**Disclaimer**
*This blog post is for informational purposes only and does not constitute legal advice. Every real estate transaction and construction defect case is unique. This post is not intended to create an attorney-client relationship. If you are selling a home with a history of construction defects, you should consult with a qualified real estate attorney such as Johnson Law regarding your specific disclosure obligations.*
