Dishonest Disclosures -

[John Lindemann]

My wife and I recently found a house that we wanted to buy for ourselves to move into.  The seller provided disclosures and we reviewed them then put in an offer and after some negotiations we got the house under contract.  I then spent several weeks lining up financing and inspections.  One of my inspections was for the pool and hot tub.  When I arrived at the house for inspections the seller was there and I immediately noticed water all around the hot tub.  I asked him if it leaked and he said yes it did.  He had not disclosed that but I know he had prior knowledge because he told me in conversation that he has had a company come out to give an estimate on repairing it...the company recommended that he not waste money on it but rather just replace it.

So...now I've spent nearly $900 on inspections and the contract is going to fall through because I asked him for a concession on the hot tub in addition to our TRR.  My question is do I have any legal ground to stand on for a small claims suit against them for the inspection cost?

To put things in perspective:

List price: $230k
1st offer: $210k
2nd offer: $215k
(then we said we were done but then when looking back at pictures...funnily enough we noticed the hot tub and that made us feel comfortable increasing our offer)
Final contract price: $220k

After inspections I asked for $3,300 in concessions to cover replacement of the hot tub and dishwasher.  Obviously that doesn't cover full replacement but in trying to be fair I valued these at what they meant to me when submitting my offer price.

Hot tub replacement cost: $5k
Other repairs expenses: ~$3k
TRR: $1,100

They also offered to do $1,500 in concessions. so of the approximately $8k needed in immediate repairs they are offering $2,600.  I'm okay splitting some of the cost but there isn't margin in the deal for me to cover that much of it.  As of now I have asked my Realtor to cancel the contract.

[Guy Gimenez]

Always best to get legal advice from an attorney, not from investors.  

[John Lindemann]

@Guy Gimenez, maybe somebody has been through this before.

I forgot to mention that this is in Broken Arrow, OK.  A suburb of Tulsa, OK.

[Charlie Fitzgerald]

I agree with contacting an Attorney...I think you have the right to walk away.

[John Lindemann]

@Charlie Fitzgerald, we have walked away and expect to get our earnest money back.  I'm wondering though if I have a case to ask/sue for my inspection costs since my inspections found issues that they knew about but did not disclose.

[Charlie Fitzgerald]

I would say yes.  Talk to an Attorney.  A letter from one to the seller will likely get you your inspection funds back.

[Stephen Bell]

Can you prove they knew it before hand? The hot tub could have leaked after he did the disclosures. $900 in damages is not worth winning with a $5,000 attorney's bill. Also, If its a good deal don't walk for a hot tub.

[Russell Brazil]

@John Lindemann If you sue....be prepared for him to counter sue you.  Also be prepared for the fact that the court is as likely to rule in his favor as it is in yours....which means you could conceivably end up owing the seller and the courts thousands of more dollars. If this went to court it would very likely be a tossup, 50/50.

Part of the process of buying real estate is having to pay for the due diligence. We pay for inspections and appraisals.  If we choose not to buy it we are not entitled to recover the money we spent.  It is impossible for a seller to list every defect with a home.  Sellers are held by courts to be responsible for known material defects.  Leaky faucets, and yes even a leaking hot tub will not likely have the court rule in your favor.  If the basement gets flooded with 6 inches of standing water after each rain fall, and the seller left that out...then you may cause for action.

[John Lindemann]

@Russell Brazil

I think (unfortunately) you are correct that it would be a toss up win, I'm not sure however what they could countersue me for.  I didn't breach contract since we were not able to agree on the TRR and I was within my timeframe.

I like @Charlie Fitzgerald's suggestion of an attorney's letter.

I agree that a seller cannot feasibly list every defect however the disclosure form is meant to be a fairly thorough review of the property.  When the seller checked off that the hot tub was in normal working order that was in fact not true.

In my mind the inspections are there not only to keep the sellers honest but more importantly to find issues that the seller may be unaware of.  I recently sold my house and during the inspections we found that the a/c was a tad bit low on Freon.  I wasn't dishonest about it, I just didn't know about that issue.  We remedied the problem and sold the house.

[Al Wilson]

Legal question. Call your lawyer. Good luck.

[Annette Hibbler]

Seller's disclosures are a legally binding document. If he did, in fact, actively hide a latent disclosure, later uncovered by your inspector, he can be held liable for that. Had you bought the house to later discover a material defect in the home, you have every right to sue him, even a year later. The fact that Seller admitted he knew the hot tub needed to be replaced is his admission of trying to deceive you.  Thus, begs the question, what else is he not telling you about?  Had I been your agent, I would have tried to leveraged this in your favor greatly.  I don't blame you though for walking away. As far as getting back the cost of inspection, I doubt it.  That may fall under "usual and customary" expenses for all buyers and under the "Buyer Beware" clause of a purchase agreement.  I would advice against getting an attorney involved.  So long as you receive your earnest money deposit back in full, you don't have much else to go after him for.  Certainly not worth the hourly price tag of an attorney.  S*** happens, move on.

[Dan H.]

I purchased a property with a much larger non-disclosure than you are talking about ($60K non-disclosure) and brought in an attorney.  To summarize the attorney indicated that because I had not sold any property, etc. that my damages were low.  I could walk away and sue for damages (a few thousand dollars) or negotiate with the threat to hold up any other sale.

If I had huge damages such as had sold a property to purchase, etc. the attorney believed that I would get the lesser of the damages or the value of the non-disclosure ($60K).

I ended up getting a $9K discount on the property ($750K to $741).  My attorney was recommending trying for a $30K discount but I really wanted the property and the seller was very cool in this whole ordeal and was difficult to get him to budge to that $9K.

BTW I used a real estate agent. In my previous view the primary advantage of using a real estate agent was if something went wrong. Well I was wrong, the real estate agency did virtually nothing. I had to hire my own attorney, do my own negotiations, etc. The real estate agency wanted to collect its fee but did not want to deal with any legal hassle to do so. This may not be a popular view on this site but if you can save some money by not using a real estate agent I recommend you do not use an agent. Their biggest value is finding property on MLS. They are not as good at finding distressed under valued properties (unless they are on MLS and have a dozen other perspective buyers) and have shown to me to be useless at resolving any legal issues. Maybe there are some that would have defended their purchasers but this was a large national real estate agency.

[John Lindemann]

@Dan H.

I just got into a new issue.  We purchased a different house (personal residence) about 2 months ago and today I found out that we are on septic instead of public sewer.  The disclosures clearly state public sewer.  Our house is unplatted but is right in the center of city limits (we are in downtown Broken Arrow, OK).  We have been having sewer issues and the plumbing company came and ran a camera but never could find the sewer entry...apparently because there isn't one.

So now to the even better news.  If the septic system has failed or does in the future then I am legally not allowed to replace it with a like-kind septic.  I will/would have to pay to connect the house to the public sewer.  This is approximately 350 ft away and several bores/cuts across driveways.  I haven't had a plumber estimate it yet but from previous plumbing experiences I'd estimate $15k minimum.

So, now I've purchased the house...what are my options?

This is all in addition to a different plumbing issue that they had to have known about as there was evidence of prior damage and work done.

Has anybody ever had experience with arbitration/suits regarding disclosures?  IMO this is a major issue!  I can honestly say we would not have purchased this house if we had known it was on septic.

[Adam Hershman]

Originally posted by @John Lindemann:

@Charlie Fitzgerald, we have walked away and expect to get our earnest money back.  I'm wondering though if I have a case to ask/sue for my inspection costs since my inspections found issues that they knew about but did not disclose.

 You may have some recourse, but honestly, suing in small claims court would be rather silly. You  could potentially recover the $900, if you could prove that they were knowingly dishonest, but realistically a halfway decent lawyer will charge that for 3 hours of work. If you do pursue legal action, you will almost certainly come out of it at a net loss. My opinion is youre better off just walking away and dealing with the $900 loss, it sucks, but that's life.

Adam

[Dan H.]

@John Linderman

I am sorry about the non-disclosure.  I am a fan of septic systems but of course not where they cannot be replaced and their failure could result in a large expense.

I suggest you contact a real estate attorney.  You may be able to get references from people on Bigger Pockets.

The attorney that I used when I had that issue had indicated that he believed we could have gotten full value of the non-disclosure if we had closed on the property but because our damages were limited we were constrained in what we could collect (so I accepted $9K reduction in price).  Note that determining the value of non-disclosure is harder in your case than it was in my case because in my case he was on septic when the city had already indicated he had to be on sewer (he simply ignored the city's demand to connect to sewer and the city never checked or enforce their demand).  So my damages, to be compliant with the city's demands, was the cost to hook to sewer (~$60K).  In your case you are currently compliant but may have issues staying compliant in the future.  Knowing this would have resulted in you taking that into account with any offer on the property and you likely would not have purchased the property or wanted to purchase it for less than you paid.

Get a good real estate attorney.  He will be more knowledgeable than I am on your rights and best approach to collect damages.

I should not recommend this and it has some risk (but probably worth the gamble) but if your system fails you could try what the person that sold me the property did and try to ignore the demand to hook to sewer and hope the city never checks.  He likely spent $1K or $2K repairing the septic to save >10X that amount.  If he got caught and the city enforced the demand he would have been out the $1K to $2K he spent to fix the septic.  Note even including my $9K price reduction his decision was cost effective. Hopefully if you take that approach you would disclose it to the buyer of your property when you went to sell it.

[Jeff B.]

Falsification in a disclosure OR failing to disclose is call F R A U D.

IMO => Seek legal support for charging the Sell and the sellers Agent.

[John Lindemann]

@Dan H. - appreciate your time to respond. 

I sure hope that this isn't a $60k problem!!!

[Dan H.]

@John Linderman

Of the $60K expense, $40K was to buy into a private sewer run that had been purchased by the home owners that had been ordered by the city to connect to sewer (the ones that obeyed the city's demand).   It was not $40K when the previous owner did not do as directed.  When the city ordered the owners to connect to sewer the owners needed to run a private sewer line and have a pump station to get the sewer to the city sewer.  The city offered low cost financing (low for back then but not that low with the cheap money of today).  The way that the contract was written each person bought into the private sewer line but the price had a 5% annual interest rate.  So my $40K buy in would go to the owners of the line to cover their buy in cost from ~15 years earlier.  If someone else bought in after me I would now be an owner of the line and get my share of their buy in cost.  Seeing that virtually everyone bought in when they were supposed to no one else has bought in.  Three houses with larger lots (I think their lots are 2 acre versus my 0.7 acre)were not required to connect to the sewer and still are on septic.

So only $20K was to actually run the lines to the private sewer line and connect (not much more than your $15K estimate and probably explained by San Diego labor costs).  However your estimate could be low as you may need a pump station to get your sewer to the city sewer.

[Becca Summers]

The septic sewer issue happened with an agent in my office. I can't remember if it was the buyer or seller but my broker uses the story to remind us to double and triple check during due diligence time. 

[Nancy Nelson]

anyone ever have a realtor ( listing Agent) lie about your offer not being the highest on a property and then finding out that you were The highest But it  already closed with the lower offer??

[Dan H.]

Originally posted by @Nancy Nelson:

anyone ever have a realtor ( listing Agent) lie about your offer not being the highest on a property and then finding out that you were The highest But it  already closed with the lower offer??

 Similar but not quite the same.  We made an offer on a duplex $20k over list.  We never received a response from the listing agent.  The property sold for $5k over list.  Our realtor believes the selling realtor had their own buyer and either did not present our offer or indicated some reason why our offer was not as good an offer as the other offer but our offer had no selling of property contingency.  

It was the last duplex to quad to hit the MLS in Poway and it was 3 years ago.

The sad part is 1) I would have gone higher 2) I would have waived the appraisal contingency.  Seeing we did not get a response I could do neither.  It is my belief the realtor did not do the seller right.   I am not a big fan of realtors; too many horror stories.  They are mostly useless for me.  In my market they are clueless. Appraisers are almost as bad.  

[Jeff B.]

Originally posted by @John Lindemann:

@Charlie Fitzgerald, we have walked away and expect to get our earnest money back.  I'm wondering though if I have a case to ask/sue for my inspection costs since my inspections found issues that they knew about but did not disclose.

 Normally, the inspection is optional and at the request & benefit of the buyer, so - - buyer bears the expense regardless of the findings.

Disclosures are another matter and usually in the form of Affidavit's - - these are enforceable.

[Mike Cumbie]

Hi @John Lindemann,

In regards to the hottub, do you know the date on the PCD form and the date that he had someone come out and look at it? Do you know who came out (John from Pools plus)? If not you may have difficulty proving he knew anything. You could try a small claims type deal (Not sure how OK does that) but in the end I think you will just be throwing good money after bad.

Good Luck in whatever you decide!

@Nancy Nelson

The best offer isn't always the highest price. There are plenty of reasons that an offer is considered better even if the price is lower. All cash, no inspections, no house sale contingencies, Waiving attorney approval periods, closing dates, personal property included. Rent backs. You could try and get the board involved or try and sue but as long as the listing agent presented your offer to the seller and the seller choose a different one, there is not much to do. In most cases you can look in the MLS and see if the agent was the same seller as buyer. If not your offer just got beat in some manner. If so, it could still have been beaten but the agent told them "my client doesn't want home inspections or my client wants to close first week in April" and they said "done"

[JD Martin]

Yup. If you do this enough and/or long enough, you'll see everything. Hell, I've ended up bidding my own offer up against myself with a ghost buyer. That's why you need to have your own price and not worry too much about the other stuff. In my case here (bidding against myself), it was still a great deal and way less than I was ultimately willing to pay. Was it a dirty trick? Yes. Was I pissed at the time? Of course. But I (try) not to let emotion and positions get in the way of making real money :)