Imagine that, after saving money for many years, you finally buy a home for you and your family. You perform your due diligence and negotiate a price, then finally sign the sales contract with the seller. The seller does not disclose that there any major defects with the home. The sale closes, and your family moves into the home.
After a few weeks or months, you might notice problems; very low water pressure on the second floor, or an outbreak of mold in the basement, or that termites are destroying the structural integrity of the front porch. Surely, you imagine, your home seller knew about all of these serious defects prior to the sale, and simply failed to report them to you. You are livid.
What can a home buyer do in such a circumstance? If there were material defects concealed within your house at the time of purchase, did the seller or the seller's agent have a legal obligation to disclose them to you? In some cases, depending on the facts and whatever evidence you can round up, you might be able to recover some portion of the repair costs from the seller.
Basic Limitations on Home Defect Litigation
Home defects like the ones described above may come to light days, weeks, or years are the sale, leaving you wondering whether you should have to shoulder the entire financial burden. What sorts of newly discovered defects might make the person who sold you the house legally liable for their repair?
To begin, you should set some realistic expectations. Ordinarily, only defects that are material and that you didn't know about--but the seller did--at the time of sale will allow you to recover from the seller. That means, of course, that most defects you might find withing a home will not make the seller legally liable to you.
First, you probably knew before the sales contract was signed that the house was not in perfect condition. Some problems, such as a crack in the front walk, may have been obvious. Others, such as aging plumbing, the seller may have disclosed to you in the course of the sale, most likely through written disclosure forms (required in most U.S. states). In either case, if you knew or should have known about a defect, and chose to buy the home anyway, a court will not allow you to sue the seller.
There may also be situations where not even the seller knew about the defect. If, for example, an underground septic tank or sewage line was leaking, and the seller knew nothing about it (and therefore did not disclose it to you), you cannot sue over it.
And even if you were not told about certain defects that the seller did know about, such as a rusty doorknob in the hallway closet, such minor defects are not considered legally material, sufficient to sustain a lawsuit. Buyers will not be able to sue for financially inconsequential defects, regardless of whether or not those defects were disclosed.
Also realize that houses don't come with a guarantee. They typically continue their normal processes of aging and decaying, leaving buyers to deal with the consequences—without any grounds to run back to the seller to complain.
In sum, you cannot file a lawsuit any time you find a little crack or scratch. Defects must be material, known to the seller, and unknown to you at the time of sale if you are to have a reasonable chance of recovery.
Who Is Responsible for Hidden or Undisclosed Home Defects?
If you believe that you have discovered a material defect that the seller never disclosed to you prior to the sale of the home, you might wonder who you can sue. There are three potentially responsible parties, each of whom may have some portion of the liability:
- The seller. Nearly all 50 states have laws requiring sellers to advise buyers of certain known, material defects in the property, typically by filling out a standard disclosure form before the sale is completed. Depending on the jurisdiction, this responsibility can override an "as is" clause contained within a purchase contract. The standard disclosure form asks the seller to state whether the property has certain features (like appliances, a roof, a foundation, systems for electricity, water, and heating, and more) and then rate or describe their condition. Some states' disclosure laws are more comprehensive than others, meaning that not all sellers will be required to discuss the condition of a feature not deemed by the legislature to be "material." Moreover, the seller is not usually required to actively inspect for problems. But if there are obvious problems about which the seller should have known, but failed to disclose, a court might believe that the seller purposely failed in his or her duties. The same is true if the seller purposely tried to hide a defect—for example, if the seller painted over a large crack in the foundation so that you would not see it. This would be strong evidence supporting a lawsuit.
- The seller's real estate agent. Some states' laws make sellers' agents liable for failing to disclose problems they observed or were told of by the sellers. Although real estate agents' duties are fairly limited, and they are usually not required to conduct any affirmative inspections themselves before selling, agents are typically prohibited from lying to a potential buyer. In some states, agents can lose their licenses for engaging in deceitful conduct. Again, check your state's specific disclosure laws and regulations governing real estate agents.
- Your home inspector. Hopefully, you got a home inspection before buying your home. Usually, home inspectors provide a full evaluation of the home's condition prior to closing. In theory, the inspector should have spotted problems that the seller perhaps never knew. If the inspector missed problems that an expert (a professional peer) should have noticed, the inspector may face some liability under a theory of negligence or breach of contract. Read over your inspection report to see what, if anything, it said about the area in question. Some buyers are embarrassed to find that the problem is described right in the report, or that the problem falls within an area that the inspector rightfully excluded from the report.
Evaluating the Strength of Your Legal Case
Once you have identified the potentially responsible parties, you will want to know whether their action—or inaction—entitles you to compensation. If your situation meets the criteria below, you may have a strong case:
- The defect existed before you bought the home. Problems that started since you bought the property, or problems that are a natural result of your home's aging or your lapses in maintenance, are your burden alone. Of course, determining when a problem "started" is complicated. For example, a blockage in your sewer line may be a new problem, or it may be a recurrence of a long-time issue with roots growing into the pipes. You may need a professional's analysis. But if the problem likely started before you bought the house, then you might have a chance at recovery.
- The defect was not obvious to visitors. If there was a huge crack running across the living room ceiling at the open house and you only decide to bring it up months after the closing, you are unlikely to have a successful case. A judge would, of course, expect that you would have seen such a problem well before you purchased the home. But if it was hidden by a false ceiling, or painted over the conceal the structural defect, the matter may be worth pursuing. (Do not worry if your inspector should have seen the problem. That might just mean that you also have a potential claim against the inspector, too).
- The seller or the seller's agent failed to disclose the defect. This is a situation where no one told you about the defect before the sale, or someone actually lied to you about it. The responsible party may have been the seller, the seller's agent, or the inspector, as explained above. Here, the laws of the specific state will be important in determining what, precisely, the seller was required to reveal.
- You relied on the lies or nondisclosures when you bought the home. This one's probably easy. If, for example, you took the seller's word for it that a remodel job was up to code in deciding to buy or in naming your offer price, you acted in reliance when making your purchasing decision.
- You have incurred monetary damage as a result. You cannot recover money from the seller if you do not incur actual financial damage. Your costs of repairs or related damages (such as destruction of your personal property due to a flooded basement, or a decrease in your property value due to an undisclosed environmental hazard) will become legally speaking, the "damages" that you may collect—even if you have not paid any out-of-pocket costs yet (for example, you need a new foundation but have not actually hired a contractor to build it). Note that you likely cannot recover punitive damages or damages for "pain and suffering" in this sort of litigation. You are normally limited to the actual costs of repairs, though sometimes you may also be able to ask the court to award interest and/or attorney's fees.
Steps Before Home-Defect Litigation
If, after reading the information above, you believe you have a strong legal claim against your home seller, selling agent, or inspector, do not rush to court yet. You may be able to recover what you are owed more cheaply and with less stress by using one or both of the following options:
- Demand letter. This essentially lays out the facts, stating the nature of the defect and the amount of damages that you seek. Demand letters have greater weight when they arrive on an attorney's letterhead, since that shows the recipient that you have already engaged counsel and intend to take the matter seriously. But they don't take long to prepare, so even hiring an attorney may be a cost-effective way to go. For more about demand letters, see Demand Letters: The Basics.
- Mediation. If the seller or agent is willing to come to the bargaining table, but you are concerned about structuring an effective conversation, mediation could be a useful process. In mediation, you would meet with the potential defendant(s) and a third-party neutral mediator. While some mediators are lawyers or retired judges, many are also industry specific—for example, expert architects or contractors who know a good deal about residential homes. Mediators are trained to guide a settlement discussion that will eliminate the need for a lengthy, expensive trial. For more information, see Why Consider Mediation?
Filing a Lawsuit: A Last Resort for Resolving the Conflict
If you are not able to resolve your dispute with one of the methods above, you will have to decide whether to file a lawsuit.
Remember that litigation can be expensive. Lawyers often charge hundreds of dollars an hour, and are even more expensive in large metropolitan areas. Litigation is also uncertain; there's no guarantee that the judge or jury will believe your "version" of the facts. Finally, litigation is time-consuming. You will likely need to sit for depositions, sort through papers, and deal with procedural roadblocks before you have your day in court. In short, if it will cost you less to repair the defect yourself than to pursue in court, you might want to avoid litigation.
If the amount in dispute is simply too much to walk away from, however, then litigation might be the best option. There are a number of legal causes of action that you might be able to assert against the seller, seller's agent, or home inspector:
- failure to disclose a defect (according to your state's statute)
- breach of contract
- breach of warranty, or
- negligent misrepresentation.
Consult an attorney in your state for more information and a full analysis of your situation.