This is always an interesting topic, and in MA, you don't have to disclose stigmatized property. I feel that Artiste is on the right path - if you KNOW something, you should never lie about it. I also think that if you KNOW something, it is almost always better to disclose it.
In the case of neighbors though, you may KNOW the neighbor said something about the house, but that doesn't mean you KNOW something about the house.
The neighbor may have told me that the living room was once painted in polka dots and was so ugly...why would that be pertinant? The neighbor may tell me that the sky over that particular house always looks green instead of blue? Why would I disclose the fact that the neighbor said this to a client?
This may sound far-fetched, but try proving a haunting to me.
In this case, the attorney is doing what they can to get paid and paid and paid. The bank covered their disclosures, most states don't require the disclosure of stigmatized property (I'd actually guess that ALL states don't require this disclosure), and they are making a big deal about nothing.
What about the indian that got murdered on that land in 1457 during a village dispute? How about all the dead animals in the backyard? Mice, moles, chipmunks, birds...
In MA, you can search the tax records for a death certificate on a property- so the bank COULD have known. But the buyer COULD have known in that case also. Either it's a case of a buyer not doing their due diligence, or a case of there being no way to reasonably know that something happened (which means the buyer, who bought as-is, has to live with it).
I'm not an attorney, this isn't legal advice...just my stupid opinion