Selling "As Is" = Free From Liability... Myth or Reality?

Question

This question pertains to an investor selling a property they own.

Given my own experience in being asked to conceal problems (which I won't do under any circumstance) as well as having encountered on several occasions, problems that show-up on flipped properties after settlement*, and conversations with other investment professionals regarding their position on this topic, I'm curious to hear from the legal community here, as well as thoughts from the masses as to their understanding on this subject:

Does selling a property "as is" provide investors with full protection from liability, under any and all circumstances?  Are investors given the same lay-person leeway in these transactions as homeowners and REOs, or are investors held to a higher standard legally?

Scenario Example: Investor acquires a property they intend to flip.  The property has some serious mold issues (in part why it was so inexpensive to acquire).  The investor has the mold remediation performed (since it's another topic altogether, let's assume for the sake of argument that the mold removal was done legally).  However, the investor does not correct the problem that led to the mold to develop in the first place.  Given that temporary conditions or measures (e.g., drought, adding downspout extensions, etc.), may easily prevent the underlying cause of the mold formation to go into abeyance, or otherwise render the condition as one that is not readily identifiable/observable (by the purchaser or their inspector), has the investor, whether through lack of knowledge in understanding that mold is not, in and of itself, the problem, but rather evidence of another problem (and so did not correct the underlying cause) or simply from a lack of ethics, free from accountability if the property is sold "as is"?  In short, are investors off the hook if they put lipstick on a pig simply by selling a property with the words "as is"?

Thanks!

*Real world scenario:  I had a homeowner reach out to me as their basement had flooded (for a second or third time since they owned it - usually following excessive rainfall)... they had purchased a detached single family property that had been rehabbed and sold via the open/MLS market (so it may not have been sold as "as is")... the homeowner was surprised to learn that I had looked at that house when it was on the market (prior to being rehabbed) and shared with them the major mold problem that existed there (and therefore, moisture problem)... of course, with all the new basement walls and floor coverings...

Wayne Brooks · Answer

No, As Is has nothing to do with disclosure laws.

Ed W. · Answer

I am not a member of the legal community but I'm a very experienced investor who sells a majority of properties "as is" and have given this issue a lot of thought and attention.

First, it is highly likely - almost to the point of certainty - that this issue can be strongly impacted by state law and legal precedents within the particular state(s) where you are doing business.  I strongly urge you to talk to knowledgeable real estate attorneys within the state(s) you want to do business.

When I researched the issue more than 20 years ago, I was given advice by a real estate attorney.  I don't know whether or not it was the correct advice or how universal it is (that is, it may be suitable only for the state of Ohio - or not at all for all I know) but I have followed it - thus far without repercussion.  Whether or not it is an "as is" deal, if you are aware of a latent (hidden) defect, disclose it.  My understanding is that there is no obligation to look for problems but if you come across a problem that is not obvious - according to him in my state, I should disclose it.  Beyond that, I say nothing but do let the buyers know they can and should inspect to their hearts content and take as much time and use whatever inspectors they want.  After they buy - with decisions based solely on their inspections - it's theirs, don't bother me.  BTW, when I buy "as is", I use the same standard for me.  I'm  a big boy, if I screw up I look in the mirror and blame the guy I see, not the seller.  The only exception would be fraud or a some form of deliberate cover-up.

I couple that with stealing from the best.  I've bought many REO's and most banks have great documents and procedures for limiting liability on "as is" deals.  I use documents and procedures that are similar.

At the end of the day, you can still be sued no matter what you do but the idea is to cover as many bases as you can so that you are in a good position to deal with a suit should one emerge.  I don't think anything can give us full protection but good procedures can substantially limit our liability.