Does a Seller Have the Obligation to Disclose a Bankruptcy to a Buyer?

Question: I signed a contract to purchase a home in west Phoenix. During escrow, I learned that the seller was in bankruptcy. Did the seller have an obligation to disclose this bankruptcy?

Answer: Yes. If a seller or a buyer is aware of a problem that could prevent closing, disclosure is required. Because the seller is in bankruptcy, your contract to buy the home is subject to Bankruptcy Court approval, after a hearing with notice to all creditors. At the hearing, your contract is basically an opening bid at an auction, and anyone in attendance at the auction can bid higher and acquire title to the home. If your seller is already in bankruptcy, any claim that you would have for additional expenses or other monetary damages due to the non-disclosure of the bankruptcy probably would not be worth pursuing.

-C. Combs