Should I disclosure

Question

Hi everyone,

I own an older single-family house in the Los Angeles area and I am trying to sell it.

Earlier this year, my former tenant reported mold concerns. I hired a mold remediation company, and after the work was completed, I also got a third-party clearance report showing that the remediation passed.

Later, the former tenant hired an attorney and sent a demand letter to my landlord insurance company. The letter asks for reimbursement for personal property and mentions some medical issues like coughing. My insurance company has currently denied coverage, mainly because the policy excludes mold/fungi and habitability-related claims.

I am trying to figure out how to handle this while selling the property. I want to disclose properly and avoid future problems, but I am also worried that the demand letter and insurance denial will scare buyers away. I already had one buyer back out after reviewing disclosures.

My questions are:

• 1. In California, would you normally disclose a former tenant’s pre-litigation demand letter and insurance denial letter to buyers, even if no lawsuit has been filed?
• 2. If a seller does not disclose this type of issue, what could realistically happen later if the buyer finds out?
• 3. After insurance denies coverage, how likely is it in practice that a tenant attorney will still sue the landlord personally, especially if the actual medical costs appear relatively small?

I understand I need to speak with a California real estate attorney. I am mainly looking for practical landlord/investor experience from people who have dealt with tenant claims, mold disclosures, or selling a property with unresolved tenant issues.

Thank you.

Greg Scott · Answer

I'm not an attorney and can't speak for California's strange laws.

First of all, every property has some amount of mold.  Its mere existence is not relevant.  You had a third-party remediation company certify that it passed.  What is there to disclose?  Yes, you could tell people that there was a problem and you fixed it properly, but that is a non-issue.

The potential lawsuit is between you and the tenant.  A former tenant would have not be able to sue a future owner of the property for what happened while they lived there.

Cynthia Ayers · Answer

From a listing agent's side, over-disclosure tends to protect a seller more than it exposes them. Buyers generally respond worse to sensing something was hidden than to a properly documented issue that's already been resolved. Since you already have a third-party clearance report, that documentation should help buyers understand what was done, but I would not treat it as a replacement for the full history of the issue.

Practically, I would want the file to tell a clean sequence. The concern was raised, remediation was done, clearance was received, and there is still a separate tenant claim issue that should be handled carefully. Some buyers might still walk, but the right buyer is more likely to stay with the deal if the information is organized and upfront instead of coming out late in escrow.

Jacob Camhi · Answer

i hear you, it's a tough spot. in california, i'd always lean towards over-disclosing, especially with tenant issues and mold. even if there's no lawsuit, that demand letter and insurance denial are material facts that a buyer could argue they should have known. it's better to be fully transparent upfront. buyers often back out when they sense something is being withheld, but having a clear mold remediation report and a third-party clearance should give them confidence. if you don't disclose and the buyer finds out later, you could face legal issues and a rescission, which is way more expensive than a lost deal. as for the tenant suing personally, it's possible if they feel strongly, but the medical costs might not justify it for their attorney. definitely chat with a california real estate attorney about your specific situation.

Bruce Woodruff · Answer

1) This is tricky, ask an Attorney for sure. I think this is asked in the disclosures, and you have to answer.

2) This issue will normally come out in the typical RE disclosures during Escrow. I would recommend being as honest as possible. If a person with severe mold allergies ends up living there and gets sick, you will be in all kinds of trouble.

3) Yep, I would expect them to come after you as the property owner.

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