IF YOU BUY A ROTTEN HOUSE, YOU MAY BE STUCK

A recent case in the Court of Appeals demonstrates that despite a perception that the principle of “let the buyer beware” no longer applies in real estate transactions, the doctrine has yet some life in Washington. The case involved a Canadian couple who wanted a second home in the Blaine area. The facts of the case tend to build sympathy for the purchasers of the house. The sellers were a licensed real estate broker and his wife. Prior to the sale the seller both personally and with a contractor did superficial repairs to several significant areas of rot and moisture intrusion into the home, which were designed not to actually correct the problems but to conceal them from view. The problems included rotten flooring in a bathroom, rotten floor joists that were “sistered” with joists that were useless because they did not reach the girder joist, and use of interior trim on the exterior to conceal siding problems. The sellers also provided incomplete seller disclosure forms and when the buyers asked follow up questions and requested a copy of the prepurchase inspection report before the sellers’ own purchase of the house, they failed to respond.

The buyers had their own prepurchase inspection done that resulted in a report of several minor areas of rot that were found by the inspector. Many of the areas of rot had been concealed by the sellers and were not discovered by the inspector. The buyers, rather than follow up the inspection report with a request for more inspection or questions about the rot that was discovered, went ahead and purchased the home. The transaction was seller financed after a substantial down payment.

After the closing of the sale, the new owners discovered potato bugs that infested the home and could not seemingly be eradicated, and once they removed some ceiling tiles insulation and water poured out from the attic. A mold eradication company could not guarantee elimination of mold because of the structural problems that allowed moisture to enter the house. A new inspection following these events discovered the true extent of the rot and the measures that had been taken to conceal the damage from inspection. The seller’s contractor testified at the trial that the seller had instructed him not to repair but to conceal the damage because the seller did not want to pay the cost of repair. The buyers found through a contractor that it would cost them more to repair the damage than it would to tear the house down and build a new house. They sued the sellers.

The lower court sided with the buyers, and decided that the sellers had committed fraudulent concealment, negligent misrepresentation, violation of the Consumer Protection Act and violation of a real estate broker’s duties as the seller of his own property. The lower court awarded the buyers damages for the cost to demolish and rebuild the house, emotional distress and Consumer Protection Act treble damages and attorneys’ fees.

The Court of Appeals reversed the lower court and ruled for the sellers. The appeals court said that all of the buyers’ claims included the element that they had the right to rely on the sellers’ statements about the condition of the house but that in this case because their own prepurchase inspection put them on notice of the existence of rot, they had the duty to inspect and inquire further and did not therefore have the right to rely on the sellers’ statements. The court said that the fact that the extent of the rot was much greater than the buyers had anticipated from their prepurchase inspection did not give them the right to sue the sellers. Only if the buyers had shown that further inquiry or inspection before they purchased the house would have been fruitless, could they have maintained their lawsuit, according to the court. The buyers did not make this showing.

The outcome of the case was that the buyers had to demolish the house and they had defaulted on the purchase loan so the court decided that they were liable to the sellers for the unpaid balance on the loan plus the eighteen percent interest that the promissory note provided for in case of default. The facts of this case may seem extreme in that a failure by buyers to follow up on a report of minor problems resulted in a loss of the entire investment where the major problems were intentionally concealed by the sellers. The case teaches that it is important to review critically inspection reports and follow up on any discrepancies. The foregoing is intended for education and should not be considered legal advice.

Leave a Comment

Your email address will not be published. Required fields are marked *