This is the final installment in a three-part series examining the issues surrounding real-estate disclosure. Today we examine what awaits buyers and sellers locked in controversy over what wasn't — or was — disclosed.
It's now eight months since a Seattle couple bought their first home, a spacious century-old two-story in a sought-after neighborhood, and still they wrestle with what to do about the expensive secret the home held.
It was not until winter delivered cold days that they discovered two upstairs bedrooms had no heat because ductwork had been removed to make way for a remodel. This had not been disclosed by the seller. The real-estate agents hadn't mentioned it, and during his four-hour inspection, their home inspector didn't discover it.
So now the couple is caught in a dilemma. Are they really going to get stuck with an $8,000 bill to bring heat to rooms they were led to believe would be warm? After all, there were heat vents in the ceiling and ductwork in the attic — which lead nowhere.
Or might they seek recourse from the sellers, the agents or their inspector?
This is a situation countless unhappy homebuyers find themselves in every year, people like the ones who've responded to the first two parts of this disclosure series. Among them are:
• The couple whose newly purchased home flooded with over 15,000 gallons of sewage. The sellers never disclosed prior sewer problems so serious the city made the new buyers sign an agreement that they'd tell future buyers about it.
• The woman who discovered belatedly that her home's "concrete foundation" is actually a coat of mortar covering rotting wood. Plus the house has serious dry-rot, and the plumbing was installed wrong. Her inspector found none of this.
• The new-homebuyer whose builder didn't disclose the house was clad with a notoriously defective brand of siding — which has since failed.
And for every home purchaser with a serious problem like these, there are untold more who belatedly learn that the fireplace doesn't draw right or the "hardwood floor" hidden beneath carpet is really plywood.
Attorney Lawrence Glosser of Glosser and Kim can sympathize.
"For everybody who's a buyer, when they find something wrong, it's a big case to them," Glosser says. "But whether they can pursue it through the courts and get some kind of relief is another issue."
Going to court
Indeed, getting relief is a complex process, with no guarantees, that begins with what disclosure covers. By law, most Washington sellers must fill out a disclosure statement, called a Form 17, and deliver it to buyers. This standard form allows sellers to answer yes, no or don't know to several dozen questions about the home's features and condition.
Sellers also must disclose any known "material defects," a material defect being something serious that could affect the property's value. However they don't have to fess up about the obvious — for example, a bathroom missing its toilet — nor must they reveal petty items like a damaged $5 cabinet hinge.
While a sale is in progress, buyers can walk away if the form gives them bad news or if they learn the seller hasn't disclosed honestly. Once the home sale is completed, there's no automatic backing out.
Theoretically, buyers can ask a court to rescind the purchase, but legally that's a hard case to make, says Glosser.
So the pursuit of a disclosure problem usually means going to court.
If the problem is less than $4,000, buyers can take their case to Small Claims Court. No lawyers are allowed, and the judge usually rules on the spot. Because they'll argue their case themselves, buyers who go this route will want to be well versed on disclosure law and well prepared with evidence. (See www.metrokc.gov/kcdc/smclhome.htm. for information on how Small Claims Court works.)
The other avenue is filing a civil lawsuit in Superior Court; this is where the big-ticket cases go. The statute of limitations here is as short as three years to as long as seven, depending on the circumstances.
To win in either Superior or Small Claims court, buyers must have proof the sellers are guilty of misrepresentation.
"The critical thing here is the distinction between misrepresentation and a warranty," notes attorney Chris Osborn of Short Cressman & Burgess. He represents the Northwest Multiple Listing Service.
As Osborn explains, "If I tell you the roof doesn't leak, I'm only liable if I knew the roof did leak." That's misrepresentation.
"On the other hand, if I say 'I promise you the roof doesn't leak,' that's a warranty. If it turns out I'm wrong, then I have to pay to make it true."
In the standard purchase and sale of homes, "there are very few warranties," Osborn notes.
So the way for sellers to avoid misrepresentation is to honestly disclose what they do know and otherwise admit that they don't.
"You shouldn't be afraid to check 'don't know' if you don't know," counsels attorney Ted Watts of Oseran, Hahn, Spring & Watts. "This isn't an IQ test."
'Should have known' doesn't work
But say sellers did know, for instance, that a floor support was rotten.
Watts says buyers will only score a court win if they can prove "by clear, cogent and convincing evidence" that the seller misrepresented the situation. "Absent something in writing, it's tough to prove misrepresentation."
But not impossible, as has been shown in cases where neighbors spilled the beans about a home's problems, or the seller did a crummy coverup job. Trying to hide evidence of leaky basements is a big one in that category. Still, unhappy buyers wonder how sellers can get away with answering "don't know" to major questions.
Part of the problem here, says attorney Alan Tonnon, is buyer expectation. He says they'll understand they're buying a 25-year-old house, for example, but still assume major systems like the furnace are as good as new. If they later find they've bought a problem, they may assume the seller "should have known."
However as Tonnon points out, "houses have things happen all the time, and people often don't know."
Under the law, "should have" doesn't cut it. "You have to have proof they had actual knowledge — not that they should have known," Osborn explains.
Otherwise, the law would hold all sellers to the same standard of diligence, making everyone from the athletic to the infirm equally responsible for knowing what was occurring in, say, their home's crawl space.
Osborn says courts aren't very sympathetic to buyers — and in fact may hold them responsible — if there's anything other than blatant misrepresentation.
Indeed, a purchaser who doesn't do due diligence operates at great peril, adds attorney Mark Schedler of Williams Kastner & Gibbs. He's seen cases where the seller clearly failed the disclosure requirements, but the buyer lost because either he didn't get an inspection or didn't make sure he got a thorough, competent one.
"You must prove you met your duty of inquiry," Schedler counsels.
Can you afford a lawsuit?
Let's say the problem is a big one and the buyer has a provable case. Or the seller has a strong defense. Is it worth meeting in Superior Court?
Obviously, that depends on how strongly the parties feel; there's no consensus among attorneys.
However, after 21 years experience practicing real-estate law, Schedler says "if a buyer calls me and says 'I've got a $15,000 problem,' he's on the edge. It probably isn't worth hiring a lawyer." Particularly when legal fees, plus costs of expert witnesses, can easily top that. And most attorneys won't take contingency cases unless the stakes are big.
Schedler explains it as he would to an angry homebuyer: "Do you like the seller? No? Then how will you like that guy changing your plans? You can't go on vacation when you want to go, or send your kid to (private) school because you don't know how much this is going to cost. And how will you like paying my bills month after month to hear me say I don't know how this is going to turn out?"
A recent state Appellate Court case, Brown vs. Johnson, awarded a buyer attorney's fees in a disclosure case, so that may help other buyers, too. But it's no guarantee.
Attorney Watts estimates that of every 100 potential disclosure cases that come to him, all but a handful are too small or too dicey to be worthwhile.
"The lawyer has a prophylactic effect on the entire process by telling people, 'look, depending on whether you're making or resisting the claim, you're going to pay me more than you're ever going to get out of it, so you should settle.' "
That's the dilemma a local homeseller faced, and it illustrates that what's fair and just isn't always what's best.
On Form 17 this seller disclosed that his unfinished basement leaked. He showed the potential buyers the permanent sump pump he'd installed. He advised them not to finish the area into a family room.
They bought the house, finished the room anyway, and when water intrusion ruined their new carpet they hired a lawyer to go after the seller.
The seller's own lawyer told him these buyers didn't have a prayer in court. But defending himself would be very expensive. So he did what his lawyer suggested. He spent several thousand on new wall-to-wall in exchange for their written word that they'd leave him alone.
Never hurts to ask for relief
Even if suing the seller doesn't look promising, what about going after the real-estate agent? After all, real-estate companies have deeper pockets than most sellers. Or how about the home inspector? Generally both carry errors and omissions insurance that pays off if they make a mistake.
State laws are very specific that agents must disclose defects they know about, but they have no obligation to go looking for them. Nor are they legally obliged the help the seller fill out Form 17 or read it afterward.
As for home inspectors, "most of their contracts state that the limit of their liability extends to the fee of their report," Tonnon says. So if the buyer paid $350, that's generally all that can be recouped.
However, as one home inspector points out, it never hurts for a buyer to simply ask for relief. Bruce MacKintosh, of Centennial Home Inspection Services, recalls one of his own cases.
Soon after moving in, the buyer washed the walls, and the paint came off. Turned out it was defective paint. This buyer complained to MacKintosh, who pointed out that paint was not something he inspected. Still, he and the real-estate agent chipped in part of the repainting costs. They figured it bought goodwill, which in a referral business like real estate can count for a lot.
While the owners of the house with the missing upstairs heating pipes haven't settled with any finality on whether they're going to pursue the problem with the sellers, right now they're inclined not to. Why not?
"You just don't want any bad juju around where you live," explains the wife. "If everything around the house is negative because of a drawn-out legal procedure, then maybe you end up not loving the house and you just want to dump it."
Heating problems aside, that's not how this couple feels — or wants to feel — about their beloved first home.
Elizabeth Rhodes can be reached at email@example.com.