The simple answer is YES! The owners should disclose all known defects as should the listing broker. As Realtors we are not allowed to tell you how to disclose defects or what qualifies as a defect. We do have state approved forms known as Real Estate Condition Reports that we provide sellers to help in the disclosure process. In addition to what the Owner discloses, we are required to disclose defects that the owner has not disclosed (or perhaps not properly disclosed).
One thing to keep in mind though, disclosing defects does not necessarily keep you from getting sued. It may certainly help you fight that legal battle - but nothing can stop someone from actually suing you.
Let's hope this one works out okay for whoever buys the property.