A New Jersey Superior Court judge recently declined to dismiss a lawsuit filed by the buyers of a $1.3 million home against the sellers for not disclosing what is being referred to as a “creepy letter.”

The lawsuit asserts the sellers should have warned the buyers about the letter. The sellers’ attorney says state law did not require the sellers to disclose an off-site condition.

According to sellers, more than a week prior to close of escrow, they received a letter from a person called “The Watcher.” The letter claimed a right of possession and/or ownership to the home.

Following close of escrow, the buyers began receiving threatening letters from The Watcher.

The Watcher advised the buyers of its families’ long-standing history of keeping the house under close watch. The letters also contained disturbing statements about filling the house with “young blood” and wanting to know who lives in which room.

Due to the eerie nature of the letters, the buyers…who have three children…refused to move into the home. Moreover, the buyers have not been able to sell the home as details about the letters have scared off potential buyers.

Now, let’s assume you represent the sellers and had knowledge of the creepy letter. How would you advise the sellers? Should the receipt of one creepy letter be disclosed? It depends.

What did the letter to the sellers say? Did it only discuss a claim to possession and/or ownership as stated above? Or, did the sellers’ letter say something similar to one of the letters received by the buyers which, according to articles written about the lawsuit, stated “I asked the [previous owners] to bring me young blood.”

What if the sellers’ letter said something of this nature? Would the sellers be required under Arizona law to disclose the letter?

Arizona law provides that a seller of real property must disclose all known facts that materially affect the value of the property, and which are not readily observable or known to the buyer. Hill v. Jones, 151 Ariz. 81, 725 P.2d 1115 (App. 1986).

In this case, it is clear that one letter is not readily observable or known to the buyer. So, is that one letter material enough to disclose? Could a bizarre claim to possession materially affect the value of the property? Alternatively, if there were threatening statements in the sellers’ letter like those received by the buyers, is the content of the letter material information that affects the value of the property?

In hindsight, we see that the house may have diminished in value due to the buyers’ receipt of creepy letters. From a risk management perspective, the Residential Seller Disclosure Advisory which states in big, bold letters “WHEN IN DOUBT – DISCLOSE!” Regardless, at the end of the day, wouldn’t the sellers rather have buyers with a full understanding about the property?

If the sellers disclose this information to you as their agent, what is your responsibility?

The Arizona Administrative Code provides that the seller’s agent likewise has an obligation to disclose information that would materially affect the consideration to be paid by a buyer, regardless of whether the seller makes such disclosure. See A.A.C. R4-28-1101(B).

Moreover, NAR’s Code of Ethics provides that “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.”

It is frightening that the lack of disclosure for something someone may not have believed to be material could cause such a controversy. And, because you could be put in a precarious situation where you may have to disclose information on behalf of your client, it is critical to impress upon your client the importance of disclosure.

As the phrase goes: If it is material, the seller must disclose it; if it is not material, why not disclose it?