Hold Seller to “As Is” Condition with Arizona Real Estate Contracts

Recently, a contract was signed to purchase a real estate-owned (“REO”) by the bank Scottsdale home. Also signed with the standard contract was a standard “as is” addendum. Although the air conditioning unit in the home was old, the air conditioning unit was in working condition at the time that the contract was signed the contract and when the home inspection was done. However, at the final walkthrough two days before closing, the air conditioning unit was not working. The bank’s listing broker said that the air conditioning unit had been repaired just before the contract was signed, however the air conditioning repairman had said that the air conditioning unit would break down again in a few days. The listing broker furnished that information to the bank, but the bank refused to authorize the money to make the proper repairs. According to Arizona real estate law, is the bank required to repair the air conditioning unit before closing?

Although the bank sold the home “as is,” the standard “as is” addendum requires that the air conditioning unit be in substantially the same condition at the time of closing as the air conditioning unit was in at the time of contract. If the air conditioning unit was not in working condition at the time of the signing of the contract, however, the “as is” addendum would protect the bank from fixing the air conditioning unit at closing. Inasmuch as the air conditioning unit was in working condition at the time of the signing of the contract, the air conditioning unit must be in substantially the same condition, i.e., working condition, at the time of closing.

Furthermore, an “as is” addendum in a contract does not protect the seller from fraudulent non-disclosure. For example, if the car dealer Tex Earnhardt sells a car “as is,” but Tex knows that the car has a defective carburetor, Tex has the duty to disclose that the carburetor is defective. Otherwise the buyer of the car would have a claim against Tex for damages for fraudulent non-disclosure if the carburetor fails. Therefore, after the listing broker told the bank that proper repairs needed to be done, the bank (and the listing broker) had the obligation to disclose to you that the repairs to the air conditioning unit were not effective.

Note: Many REO bank sellers have their own form of addendum used in their REO sales which may have terms different from the standard sales documents and should be reviewed carefully.

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