It may be time to lawyer up, anyone else come across this before?

Question

Hello BP,It's always fun posting stuff on here and hearing what everyone has say, but i'm afraid this post isn't quite as pleasant. Nonetheless i'm sure there are lessons to be had here and I would greatly appreciate experiences responses:I recently purchased several duplexes in the Cleveland, OH area and was planning on BRRRRR each one. All were purchased for cash, rehabbed with cash, tenants have been placed and things were moving fairly smoothly. I received a call regarding my property in Lakewood that the basement has been flooded with about 4" - 5" of water. The property was fully rehabbed a month or so before, nearly $80k went into fixing this place up so everything should have been taken care of. My contractor went to the property expecting to find a crack in the foundation or some gap where water could come in from the outside since it had rained significantly that day. No cracks were found, the water was actually coming from one of the sewer drains. Cleveland has 2 sewer lines - one for waste water from the toilette and showers etc. and the second for run-off water from the gutters. The city was called, they came to snake the line and found no damage in the pipes going from my property to the streets, which means the damage was done AT THE STREET, which would be city owned pipes.The next day, the city sent out a construction crew to dig up the front sidewalk and sure enough, a giant hole in the city pipe for the runoff line was found and replaced. The backup had occurred at the street sending gutter water back up my drain pipes and into the basement. The initial conversation with the city has not gone so well as they claim they are only responsible for repairing the pipes at the street and not responsible for any damages caused by their pipes. Immediately red flags were going off in my head as this seems pretty clear they should be paying for the damages done, but I wanted to get some advice from others who have dealt with this before.**BONUS** This story comes with a bonus by the way lol... it doesn't end with the city neglect! We had to tear apart the basement and replace all of the drywall and some structure, but it turns out that the previous owner had been dealing with basement flooding for some time. The wood behind the drywall was severely damaged and rotting, new drywall was thrown up quickly before they listed the property to cover up the damage. I'm aware that any material facts about a property need to be disclosed upon the sale. Having extensive damage in the basement would definitely be considered a material fact and covering up damages with a bandaid and not disclosing it should be considered fraud. I would love to hear from other real estate investors, professionals, lawyers, etc. to see if I am way off-base with this or should I proceed with legal action?Thank you everyone for reading and thank you in advance for your responses!

Brian R. · Answer

I can't speak for Cleveland, but here in Minnesota, it is normal that most cities will not cover damage from a backup from a sewer line for any reason. It has been upheld by courts here. I pay, about $10.00 per year for coverage on my insurance for sewer backups.

Don Petrasek · Answer

@P.J. Bremner I had essentially the same back up issue at the house I live in which is a couple of cities west of Lakewood. The city's stance on the phone was that they weren't responsible, but I sent them the bill for clean up (e g Servicemaster) and they reimbursed me for it. It might be worth just drafting a letter yourself to the city (probably send it to the Service or Law Director) and see what happens.As for the pre-existing damage you found behind the drywall, you should definitely contact your realtor and see if anything can be done with that. It seems logical that the pipe damage was there for quite some time and it sounds like the previous owner may have just dealt with it but then didn't disclose it when it came time to sell. Having said that check the Ohio seller disclosure form, I think the question is if there's been flooding in the last 5 years...and potentially it hadn't flooded in that period of time but we have had major rain events over the past 5 years. I recall one that was probably 3-4 years ago that put about 3 feet of water in a house I own in Cleveland (whole street gets water pushed back thru sanitary lines due to an issue in the main). Hopefully your contractor got good pictures. @Amit M. dishwasher went bad in the unit above a condo I own and no one was home. Flooded my entire hallway into bedrooms, lots of ceiling damage. No way to stop it.

Tim Swierczek · Answer

@P.J. Bremner @Brian R. is correct in Minnesota and I suspect nationwide. The reason street back up coverage is optional with insurance carriers is because it's quite common. It's not likely your landlord policy had this protection but you will need to check.

Michael Norris · Answer

Sorry to hear about your situation. As a Lakewood investor and Ohio insurance agent this comes up... A LOT! If it makes you feel any better - Sewer & Drain backup is probably one of the top 3 most frequent claims made and a surprisingly (to me) large number of people choose not to have it on their policy. Not all carriers offer Sewer & Drain backup for landlords but when they do it is fairly affordable. My main company for 1-4 family properties offers a flat $5000 Sewer & Drain backup coverage with $250 deductible for +$75 per year add on to the base policy. With a finished basement you should have more coverage than $5k so another carrier would be a better match in your case. Good luck on the prior damage disclosure - I'd love to see follow up on how that turns out.

Joe Sanada · Answer

**This is not legal advice. I am not your attorney and me posting in here does not establish an attorney client relationship with anyone in this forum. If anyone has any legal questions, you should contact an attorney who is licensed in your jurisdiction and is familiar with the law surrounding your particular legal issues.**I can't speak to the laws of your state nor can I technically give you any legal advice. That being said, back in my attorney days I had a few clients who had damage done to their properties as a result of negligence by government entities.I don't know whether you have a case or not, but if you are considering lawyering up, you should do it sooner than later. In many jurisdictions there are specific statutes that require you to file claims with the government in a very short time frame after an accident. These requirements are different than the typical statutes of limitations for civil lawsuits between non-government individuals. For most civil lawsuits the statute of limitations is upward of a year for you to file your case with the court. For claims against some government entities, you have to file special claims directly with that government entity within just a few weeks in order to be allowed to file a civil lawsuit later if the government denies your claim. Stated differently: if you don't file the right paperwork now, you might be giving up your right to sue the government for damages and the timeframe for doing that is usually ridiculously short.You will want your attorney to do that paperwork for you because if you screw up that paperwork, it can potentially result in your attorney having to spend a LOT of time dealing with that in a civil suit and may even result in you losing your ability to file a civil suit against the government in its entirety.Again, this isn't legal advice. I'm not your attorney. Just wanted to give you a heads up that you might have to act unusually fast if you are considering litigation against the government.

Christopher Smith · Answer

P.J.Two of my three events were in California Bay Area (the two big ones). I was a little reluctant to speak to the insurer at first, but ultimately they ended up being very helpful and probably saved me (and them) major costs by remediating the situations quickly. I would do more than just email them I would try to find someone at the company who really has a lot of experience and understands this process intimately and speak with that person, that is ultimately what I did.For my first event (Ohio Property - small event), it was deemed not advisable to file a claim and just repair the pipe leak on my own, It was only about $1,000 worth of damage (had to go through a little concrete to get to the broken pipe) and that was my deductible so it made no sense to file a claim.For my second event (California Property) - had a rat chew through some PVC piping about $5,000 damage with some minor mold found from an earlier spill that was not properly cleaned up. The insurance carrier paid for most of this (but not the mold clean up, since they don't cover mold, apparently too risky for them in California properties - Lawsuit Happy State).For my third claim (California Property - Different one) - had a dishwasher leak that caused major damage to about half of the entire first floor, about $25,000 damage in total. The insurance carrier (same as above) jumped on this one very quickly, dried out the place to preempt mold growth, and totally gutted the Kitchen of everything, and much of the wall board and all flooring for the remainder of the first floor. They were really great, because I have virtually a totally new first floor in a fairly expensive home (~650K) and all I was out was my $1,000 deductible and a couple hundred dollars more in non recoverable depreciation. Plus, I got a rental income allowance of a half month, another (1,400), since we rebated that amount to the tenant for their inconvenience during the construction period. We even let the tenant (with our final approval) pick out the new Cabinets, Granite and Carpet - looks even better now than it did when it was brand new.Those are my experiences. Sorry I never had to deal with the municipality on anything except once for a very minor pipe leakage repair at the street hook up which I had to pay. Same as some of your other commentators remarks above, they said it was my responsibility. It was only a couple hundred dollars so I didn't fight them at all and just paid it myself.

P.J. Bremner · Answer

Quick follow up:The city did their investigation and the insurance company has determined they are not going to cover any of the damages. Their reasoning is that damages caused by the city line were not known to the city prior to it rupturing. The only time they cover damages is when they know there is a problem and decide not to fix it, then later the issue arises again and causes damages. Basically, I'm SOL lol

P.J. Bremner · Answer

Here is an update on the situation:I decided to not move forward with any legal action. There is very little chance that I would be able to produce concrete proof that the previous owner covered up flood damage and failed to disclose the flood incident. The lawyer stated that, "The best way to have proof of this is to look up the previous owner's bank statements and look for repair bills and inquire with the company who was paid. It will be nearly impossible for a judge to allow you access to someone else's bank account information." Another possibility is checking with the city for previous flood or city pipe issues, which they have none on record. It's very difficult to prove when an incident happened without written records.I also decided to speak directly with the city's law department and file a claim with them, which they forwarded to their insurance carrier. They are currently investigating the incident and will make a determination as to what, if anything, is covered. My fingers are crossed hoping that they cover at least some of the damages, but mentally I've already moved on with the costs and absorbed them into my tax write offs. C'est la vie!

P.J. Bremner · Answer

@Michael NorrisThank you for that info, I spoke with my insurance company and they do not offer anything for sewer & drain backup. My broker stated that they specialize in CA rentals so I may need to switch companies if I want to pick that up. Not too many basements here in CA (I think I've seen one in my life and I've looked at hundreds of properties lol) so it makes sense.I will definitely keep you posted. I just reviewed the disclosure statement from the purchase just to make sure, there was nothing on there regarding flood damages so I will spend this week talking with a lawyer or two.

P.J. Bremner · Answer

@Don PetrasekGreat advice, they certainly talk up as if they will not be responsible for anything. The damages came out to roughly $8k in total - full gut, replace lots of framing, all drywall, replace a 2 month-old water heater (circuits were sizzled and warranty doesn't cover flood damage), etc. I'm not quite sure what the city would think upon receipt of an $8k repair bill, but it would certainly help me out a bit. I didn't have the rider on my insurance for sewer backup so most of this will be out of my own pocket. My deductible is at $5k so I'll have to pencil it out.From what my contractor says, the damage was quite extensive and there is evidence of multiple cover-ups so not just a single flood incident. That should be pretty hard to dispute in court.@Kim Meredith HamptonI'm really hoping the "I never lived there" excuse has no legs in this case lol I've heard that it can be used as a catch-all phrase. My question for that is - Who did the repairs for you? At some point, they would have had to pay someone to fix the issues, which means they would have been aware of a flooding incident at their property. I'm not sure what the legal precedent is for that, but I guess we will find out!