Basement flooded mid-BRRRR and I'm unsure what to do

Buying & Selling Real Estate
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Basement flooded mid-BRRRR and I'm unsure what to do

Max Martin
Santa Monica, CA · Member since 2015 · 13 posts · 2 votes

Hey everyone. I'm in a really tough spot right now and could use any and all advice/help people are willing to give.

Property Details:

SFR 3bed/1bath 1,300 sq ft

East Indy (east of Post, west of St. German Church, near Washington - Warren Township)

Backstory: 

I bought a SFR in Indianapolis in November through a wholesaler and had them do a rent-ready rehab (I used the wholesaler because I didn't have a PM that I could count on to do the work). The cost of this rehab was about $12k but I budgeted $20k because I knew there would differences in my (new) PM's definition of what "rent-ready" means. The new PM's rehab SOW came in around $10k (so only slightly off-budget so far, which is fine).

Fast forward to yesterday, when I woke up to a call from my new PM saying that there is 4' (yes, FEET) of water in my basement that accumulated between 2/7 and now (about 1 week). They sent a remediation team to pump the water out and dry it out with heaters. Unfortunately, the furnace, water heater, and water softener are all in the basement so there is likely damage to those units. We are also unsure of the cause of the water, whether it's from the ground, a bursted pipe, or some other system failure. I had a new sump pump installed less than 1 month ago. My $5k deductible insurance covers special form but does not cover flooding.

What I need advice/help with:

1) What should my immediate next steps be (outside of writing down EVERYTHING that has happened)?

2) What should I be aware of when assessing damage and filing an insurance claim?

3) What sort of costs should I expect for damages?

4) Will this affect my home valuation during refinancing?

5) Should/can I take legal action against the previous owner?

I'm doing my best to chalk this up as tuition for learnings in real estate and am trying not to let it stop me, but it's a pretty huge blow to my plan of building out a rental portfolio. 

"Everyone has a plan until they get punched in the mouth" ~Mike Tyson

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Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
7y

@Max Martin Sorry to hear about this. Flooded basements is such a common problem in some midwest markets that I did a whole podcast on the subject. 99% of water intrusion is due to improper drainage and soil grading and can be mitigated by having properly functioning gutters and downspouts and grading the soil away from the foundation. These are very simple, inexpensive solutions but are often overlooked. The extent of the water that you have would lead me to believe that it's due to something more however. Once you get the water pumped out you'll be better able to see the source. Unfortunately, your furnace and water heater may be a loss. I'm curious to know though the sump pump malfunctioned or just couldn't keep up. I doubt that you can take any legal action against the previous owner unless you can prove that they were aware of an existing condition. Did they complete are Sellers Residential Real Estate Disclosure that is required by law? If you bought it through a wholesaler, they wouldn't know if there was an existing problem.

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  • Matt Burns
    Cary, NC · Member since 2011 · 34 posts · 16 votes
    7y

    Hey Max, really sorry to hear what happened! My recommendations:
    1.) Find out the source of the water intrusion. You don't want it to occur again. 
    2.) If you have a good insurance carrier, they'll have a claims rep help you in this instance, not hinder the process. 
    3.) I imagine your cost would be your deductible expense and any vacancy loss. 
    4.) State law likely requires you to make the home habitable and as a rental, that will affect your ability to refi. 
    5.) Contact an attorney about taking action against the previous owner but I'm in a "buyer beware" state and we wouldn't be able to pursue the sellers in any case. Possible to make a claim against your home inspector or the seller's agent but it sounds like you'd be going down a rabbit hole...
    Don't get discouraged. I've managed thousands of homes and trust me; 5 years from now you'll be better prepared for your next "setback." Just get through this one! 

    1Reply
  • Brent Bridgman
    Real Estate Agent · Indianapolis, IN · Member since 2015 · 26 posts · 17 votes
    7y

    Hey @Max Martin,

    Sorry this happened to you. As a local, just wanted to give you a heads up that we had a TON of rain in the past week. If its a pipe burst it should be pretty obvious to your team walking into the basement. My hunch is that its a gutter/drainage problem around the exterior of the home. Most water problems in basements around here are gutter problems. People are lazy and don't put in off-shoots for their downspouts so water ends up pounding against the foundation of the home. 

    We always put 10' off-shoots on the bottom of our projects right when we start. Its not pretty, but keeps water away from the house. Depending on the finish of the property, you can trench them out and make it look fancy. 

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  • Michael Thompson
    Indianapolis, IN · Member since 2014 · 206 posts · 127 votes
    7y

    @Max Martin I agree with @Matt Burns here.  However, number 5 is a tricky one.  ESPECIALLY since you bought from a wholesaler.  I'm guessing you had an inspection period and they probably stated the property was as-is.  Did they assign the contract to you or did they double close?  My opinion is this is important to determine who is the responsible party.  One could make an argument that you were assigned the contract and closed with the seller or the wholesaler personally might be responsible if they double closed.  Also, you have to determine if this was a known issue and they didn't disclose.  

    But throw all of that out the window if the "rent ready" rehab was the issue.  Other than the non-functioning /overwhelmed sump pump we don't have enough information to determine who or what's at fault.  We would need to compare you SOW with what is actually causing the problem!

    I hate this for you and good luck @Max Martin!

    1Reply
  • Mike D'ArrigoPro Member
    Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
    7y

    @Max Martin Sorry to hear about this. Flooded basements is such a common problem in some midwest markets that I did a whole podcast on the subject. 99% of water intrusion is due to improper drainage and soil grading and can be mitigated by having properly functioning gutters and downspouts and grading the soil away from the foundation. These are very simple, inexpensive solutions but are often overlooked. The extent of the water that you have would lead me to believe that it's due to something more however. Once you get the water pumped out you'll be better able to see the source. Unfortunately, your furnace and water heater may be a loss. I'm curious to know though the sump pump malfunctioned or just couldn't keep up. I doubt that you can take any legal action against the previous owner unless you can prove that they were aware of an existing condition. Did they complete are Sellers Residential Real Estate Disclosure that is required by law? If you bought it through a wholesaler, they wouldn't know if there was an existing problem.

    2Reply
  • Max Martin
    OP
    Santa Monica, CA · Member since 2015 · 13 posts · 2 votes
    7y

    @Mike D'Arrigo @Michael Thompson @Brent Bridgman Thank you guys for the responses. 

    It looks like it might have been an issue where the sump pump electrical breaker flipped in the panel and stopped working.

    I'm still unsure about where the leak was (pipe or ground water) but I'm hoping to find out soon. It sounds like once I get this expert opinion, I can figure out if I need to flip out of this or continue the BRRRR.

    I'll be sure to update when this comes to resolution!

    Thanks again

    1Reply
  • John Mocker
    Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    Max,

    The Cause of the loss is a key item.  If it is a pipe that burst and it was sudden and accidental, you may have coverage.  The location of the pipe could also be an issue.  if it is below or outside the foundation that may present some issues.

    If the sump pump was overwhelmed, check to see if you policy has the Water Backup endorsement.  If so, there could be some coverage there. 

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