What is Knowledge?
If you ask somebody whether they “know” something, they will readily tell you either “yes” or “no.” There is no doubt while watching Jeopardy – either you know or you do not know the answer (or actually the question). A person is said to have actual “knowledge” as to a certain fact because they have actual awareness of it; whereas, if they are unaware of it, the converse is true, as they are without actual knowledge. In real estate transactions, however, there are two other types of “knowledge” that one may or may not have, depending on the circumstances. One such type of knowledge is “constructive,” and the other is “imputed.”
Constructive knowledge is based upon the fiction that a person is deemed to “know” something that which they could learn by making a reasonable inquiry, even if they do not actually know it. The most common example of constructive knowledge is that a person is deemed have knowledge regarding property of all matters that would be disclosed through a review of documents recorded at the County Recorder’s office in the county where the property is located. Thus, even if a person does not review the County Recorder’s records regarding a property, and thus does not have actual knowledge of recorded matters, they are still legally considered to have knowledge of those matters that they would have known had they checked such records. The old adage of “ignorance is bliss” simply does not apply when it comes to the doctrine of constructive knowledge.
A third type of knowledge is “imputed knowledge,” whereby a person is deemed to have knowledge which they do not personally have, but which a person acting as their agent does have. For example, if a Seller has no actual knowledge that their pool has a leak, but their real estate agent, in the course of their representation of the Seller has the pool tested and discovers a leak, even if the agent fails to pass such knowledge on to the Seller, the Seller will still be deemed to possess such knowledge, by virtue of it being ‘imputed” to him from his agent. This becomes critical in the context of the Seller having to make disclosures to the Buyer of all known property defects.
Oftentimes in sales contracts, a Seller will warrant certain conditions to exist, or to not exist. The Seller should attempt to limit its exposure to potential later claims of having breached that warranty by limiting the warranty to their actual, not constructive or imputed knowledge, and if the Seller is an entity, it should be further limited to the actual knowledge of specific named principals of the Seller. Having a clear understanding of the different types of “knowledge” that one may have will go a long way towards avoiding legal issues that may arise either during or after a real estate transaction.
About the Author: David Allen, a partner in the Phoenix law firm of Jaburg & Wilk, has been representing clients in both transactional and litigation real estate and business related matters for over thirty years. He is licensed as an attorney in both Arizona and California, and is also a licensed Arizona real estate broker.
Originally published on https://www.asreb.com