Most home buyers expect to make a few minor repairs and undertake routine maintenance after purchasing a property. Those who have done their due diligence do not expect major problems to pop up after closing. Unfortunately, some buyers will find problems with their house after moving in, which could result in thousands of dollars and months of time wasted. When faced with major problems that were never disclosed, homeowners naturally want to know who they can hold financially responsible for repairs. You might assume that the seller, inspector or listing agent is responsible. However, proving negligence, fraud or misrepresentation by any of these three parties can be difficult if not impossible. Below, we explain what to do when you buy a house with problems not disclosed. From hiring a real estate attorney to gathering all the necessary documents, we outline it all.
Can I Seek Legal Recourse if I Waived the Inspection Contingency?
Some buyers in today’s incredibly hot seller’s market have waived all contingencies to win bidding wars. Even if you released the inspection contingency, you might still have legal recourse after the real estate transaction has closed. This is because sellers are required by law to disclose certain issues called “material defects” – even if there is no home inspection report. However, the list of home defects a seller must outline in their disclosure form differs from state to state and from city to city. Writing for NerdWallet and Investopedia respectively, Barbara Marquand and the Investopedia editorial team explain which disclosures are commonly required across the US.
Which Problems Are Sellers Required to Disclose Before a Sale?
In “Seller’s Disclosure” for NerdWallet.com, Barbara Marquand notes most standard disclosure forms require the seller to point out severe defects. These material defects include serious issues like roof leaks or flooding. They must also disclose cracks in the foundation, HVAC system issues, plumbing problems and “septic or sewer system problems.”
In most states, sellers have to state certain insect infestations and resultant damage as well as “unsafe conditions related to radon, asbestos or lead.” The latter is required only in homes built before a certain period when these materials were no longer allowed in construction. Some states will also require sellers to make prospective buyers aware of boundary disputes and HOA fees.
The Investopedia editors add to this list in their article “Buying a Home: 8 Important Seller Disclosures” for Investopedia.com. Many state governments require sellers to disclose a death in the home, neighborhood nuisances and a history of repairs. For those unfamiliar, a nuisance is “a noise or odor from a source outside the property that could irritate the property’s occupants.”
In some cases, sellers must also make the buyer aware of items they plan to take from the property upon moving out. Some states’ disclosure laws attempt to prevent this problem. For instance, the states of Michigan and Texas “require sellers to disclose whether the property comes with a long list of items.” This list may include “kitchen appliances, central air conditioning and heating, rain gutters, exhaust fans, and water heaters.”
Loopholes in Local Disclosure Laws
However, some states do not require sellers to file a disclosure form at all. According to Marquand, “Alabama, Arkansas and West Virginia, have ‘caveat emptor’ rules, which essentially means ‘let the buyer beware.’” Caveat emptor rules allow sellers in these states to avoid filling out a disclosure form as long as they abide by federal law. Sellers might find other loopholes too. For example, the Investopedia editorial team notes that New York State law allows sellers to avoid disclosing some issues. They are free and clear as long as they “pay a $500 credit to the buyer at closing.”
Some loopholes apply only to certain issues, such as the requirement outlined above to disclose when a death has occurred within the home. Quoting real estate broker Jim Olenbush, the Investopedia editors elaborate. They note that in Texas “‘deaths from natural causes, suicides, or accidents unrelated to the property do not have to be disclosed.’” All in all, “local laws vary, so it is important to check with the appropriate planning departments for details.” If the home seller did not disclose problems they were required by law to enumerate, you could take legal action in small claims court.
Who is Responsible When Undisclosed Problems Are Discovered After a Sale?
Depending on the issue you discover after buying your house, you might be able to sue the property owner. You could also sue the property inspector or the other party’s real estate broker. The basis of your lawsuit could be fraud, negligence, breach of contract, breach of warranty, or negligent misrepresentation. You can determine who might be at fault by gathering three documents and parsing through them with a real estate attorney. These documents include the seller’s disclosure form, home inspection report, title report and property survey.
No matter who you pursue, you must be able to prove that they should have known or did know about the issue. In the latter case, you must prove that they actively concealed it from you. The homeowner must provide a judge with evidence before the suit can move forward. In all likelihood, your complaint will never find its way into a court of law. In her article “Failure to Disclose: Should Buyers Sue Sellers for Not Revealing Problems With the Home?” for Realtor.com, Jeanne Sager explains. Sager writes that “some purchase contracts will contain a provision that the buyer and seller must try mediation before the filing of a lawsuit.” Similarly, “other purchase contracts will require that disputes between the buyer and seller must be arbitrated, rather than litigated in court.”
Of course, lawsuits are expensive for all parties involved. As such, it is often advantageous to both the buyer and seller to avoid court and pursue arbitration or mediation. Regardless of where your legal case ends up, the first two steps you must take are as follows. First, you must read through the documents above. Second, you must send the inspector, seller or agent a demand letter. Real estate attorneys can advise buyers on how to do both.
The Home Inspector
Though unlikely, it is possible that your home inspector is to blame for major issues you discovered after moving into your new home. In some situations, you might be able to file a professional malpractice or negligence suit against your home inspector. In his article “Can I Sue My Home Inspector for Defects Left Out of the Report?” for NOLO.com, attorney Brian Farkas explains. Farkas writes that certified home inspectors are held to a certain set of professional standards. If they deviate from these standards, they could open themselves up to lawsuits.
According to Farkas, negligence usually refers to “failure to act as a reasonable person in the same shoes would have acted.” As such, the most effective way to prove your home inspector was negligent is to hire a second inspector. This inspector should be able to examine the same property but actually discover the previously undisclosed defects. Hiring a new inspector to contradict the first inspector’s report could go a long way towards proving your original inspector was negligent. You might need to hire a couple new inspectors to demonstrate general professional consensus.
What if I Signed A Contract with an Exculpatory Clause?
Even if you provide evidence of malpractice or negligence, you might not be able to sue for enough money to cover expenses incurred. In his article “Is a Real Estate Home Inspector Liable If He Misses a Major Problem?” for SF Gate, Robert Alley explains. Alley notes that “a real estate home inspector can insert a clause in his contract that limits liability to the cost of the inspection.” This clause is referred to as the “exculpatory clause” and only protects the inspector — not the seller or the seller’s agent. However, most inspectors do carry liability insurance. If your inspector is insured, their provider will probably compensate you for damages once the inspector has filed an insurance claim.
The Home Sellers
Your next option is to potentially sue the home seller. However, unless the seller committed outright fraud by not disclosing home defects he or she knew about, they are unlikely to be held responsible. Unfortunately for the buyer, suing the seller for failing to disclose problems you know they were aware of is not simple either. The burden of proof is on you – the buyer – and that burden is significant. In his article “So There’s a Problem With Your New Home—What Can You Do?” for Realtor.com, Warren Christopher Freiberg explains. Freiberg notes that “‘in order to have any recourse, you have to prove that the seller knew about the problem.'” You must find evidence that the seller knew but “did not disclose it, or even lied outright about it…[which] can require interviewing neighbors.’”
Even if you interview neighbors, read your purchase contract and find evidence, your state’s statute of limitations could put an end to the process. Be sure to check your area’s laws as “the exact statute of limitations for your legal action varies from state to state.” By the time your investigation has produced enough proof, the statute of limitations might have expired – leaving you holding the bag. Checking these limitations could mean the difference between a situation in which you pay or in which the seller pays.
What if I Bought the House “As Is?”
There is one common misconception about when and why you can sue a seller for damages after purchasing your dream home. Both parties often assume that buying a house “as is” means the original homeowner does not need to disclose certain details about the property. However, this is not the case and could result in expensive legal trouble for the seller. In “Seller beware: Failure to disclose during home sale could cost you” for the Milwaukee Business Journal, Aaron E. Hall and Davis Kuelthau explain.
Hall and Kuelthau write that “selling a house ‘as-is’ does not protect against a lawsuit alleging active concealment of a material defect, i.e. fraud.” In fact, sellers who conceal defects in a house listed “as is” could be responsible for a “variety of potential damages.” According to Hall and Kuelthau, buyers could sue the seller for “breach of contract and intentional misrepresentation.” In doing so, they could “seek either rescission of the sale or the costs to repair the alleged defects.” Buyers could also reasonably “bring a cause of action that offers the potential of recovering multiplied damages and recovery of their attorney’s fees.”
The Listing Agent or Real Estate Broker
Finally, the seller’s real estate agent could be the responsible party for your home’s undisclosed material defects and resultant damage. In her article “Are the Sellers of a House Liable for Repairs After the Closing?” for Homeguides.sfgate.com, Karina C. Hernandez explains. According to Hernandez, “a seller’s failure to disclose the need for repairs may constitute fraud on the seller’s part.” This could make the seller “liable for all or part of the cost of repairs after closing.” If the seller was completely unaware of material defect, but the listing agent did know, “they might be held liable…rather than the seller.”
If the seller did know about the issues and discussed them with their real estate agent, the agent could be held responsible too. Collusion between the agent and seller or inspector in order to close a sale based on false information is illegal in most states. Evette Zalvino elaborates in her article “6 Things to Do If You Bought a House with Problems Not Disclosed” for Homelight.com. According to Zalvino, “some states will strip agents of their licenses if they are caught being deceitful to make a sale.”
How Do I Know if I Have a Legal Case Against the Seller, Inspector or Agent?
In “Home Defects” for NOLO.com, Ilona Bray, J.D. identifies six characteristics of a solid legal case after a home sale. These characteristics apply to most legal jurisdictions across the United States. First, buyers must ensure that the defect in question was there before they bought their house. Second, the damage cannot have been obvious enough that the buyer identified and diagnosed it on their own. Third, the buyer must not have been informed in any way by the seller, the listing agent or the home inspector.
Fourth, the buyer purchased their dream home based on intentionally false, misleading or absent information. Fifth, the buyer has “incurred monetary damage as a result” of the defect in question. For example, your basement flooded or your property value declined “due to an undisclosed environmental hazard.” Lastly – as mentioned above – the suit must be filed “within any appropriate deadlines” or statutes of limitations. As long as each is met, you have a strong chance of winning your case.
Alternatives to Suing the Seller, Agent or Inspector
If you would rather avoid contacting the seller, agent or inspector, you might consider filing a claim with your insurance provider. This process is often simpler and more fruitful than filing suit. Writing for SFGate.com in the article mentioned above, Karina C. Hernandez explains. According to Hernandez, “filing a claim through a homeowners’ insurance policy or a home warranty plan may prove cheaper.” This is because your homeowners insurance policy should “cover a variety of problems, from bursting pipes to electrical fires and fallen trees.” Furthermore, your home’s warranty could “overlap with homeowners insurance coverage on some repair items, and cover systems the insurance provider does not.”
Keeping Track of Your Home’s Data As a New Homeowner
As a new homeowner, you want to know absolutely everything about your property. Finding undisclosed defects after buying your home can be a shock and a huge headache. It is each homeowner’s responsibility to keep records of maintenance, repairs and other changes made to their property. Organizing all this information can be incredibly difficult. Imagine if a record of all the work done to your home was easily accessible and verifiable – from breaking ground twenty years ago to routine maintenance last month. This would eliminate so much of the stress and uncertainty surrounding the home buying experience.
It would also streamline communications between the homeowner, their lenders, their city planning department and other third parties. Pulling permits, looking up warranties and reviewing repair records would be simple and straightforward. When it comes time to sell, no one would worry about undisclosed issues. With our new Blockchain Home Registry, you can take control of your home’s data. Learn more here.