Anything is leagal (with the exception that it is deemed unlegal, like selling drugs or robbing a bank) if the buyer and seller have full disclosure and are totally aware of the conditions of the item, house, being sold.
The seller, for their own protection, needs to document this problem to the nth degree with a ton of signatures from the seller to hold then harmless in all cases and that a price reduction was made as a compromise by the sellers for this "defect."
"The American Republic will endure until the day Congress discovers it can bribe the public with the public's own money.
- Alexis de Toqueville, 1835
I don't know in TN. Some states have mandatory disclosure of defects, others don't. Even if you could do an "as is" sale with only the Federal (lead paint and asbestos) disclosures, I would mention the HX crack since you know about it. Even if you don't have any liability for not disclosing, IMHO it's pretty sleazy not to.
If you insist on trying to hide this defect, you really need to talk to a real estate lawyer who knows the laws in your state and can give actual legal advice.
I don't know about whether it would be legal or not in your state. If you know about it and sell the house this way and somebody dies you may be responsible. Let's think about karma and what you would like if you were buying the house. All I can really say. I know you will do what ever you want to do anyway.
to clarify: I'm NOT the Seller of this house. I'm a potential BUYER and I'm trying to get as much leverage for getting this antiquated 1989 system thrown in the trash - where it belongs. If anyone has any tips, I'm all ears. This is my first house so I'm open to advice.
It seems that the seller's agent couldn't care less about the dangers involved with the unit. I think that's as immoral as it gets!