Buyer demanding mediation over seller disclosure

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Buyer demanding mediation over seller disclosure

Robert Steele
Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes

I sold a house several months ago and now the buyer is getting on my *** about not disclosing that the property had termite damage. I owned the house for less than a year and did not live in it. I could not disclose what I did not know.

They say;
1) They have the inspection report from the previous buyer who backed out during the inspection period and it shows a photo of the termite damage inside the bathroom vanity.
2) After that the damage had been covered up.

I say;
1) I did not see this inspection report. The first buyers did not show it to me.
2) I never saw the termite damage either. My wife did but thought it was wood rot from water damage. After the first buyer fell through we did a second round of repairs and this was repaired with new plywood and painted.

The real kicker is that other termite damage in the master bedroom did come up on their inspection report because they told us so in writing and asked us to pay for a termite treatment which we refused.

Now they want to go to mediation and I don't want to waste the $500 mediation cost plus lawyer fees on what seems like a frivolous issue.

What do you guys think?

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Mike Neyman
Real Estate Investor · Cleveland, OH · Member since 2010 · 31 posts · 18 votes
15y

I think the important point here is that the buyers' own inspector found termite damage. They decided to go ahead with the purchase anyway.

Are they now claiming that they didn't know? If so, the report should prove otherwise. If buyers admit that they knew and want to be compensated after closing, I think they're out of luck.

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  • Paul B.
    Real Estate Investor · Alpharetta, GA · Member since 2010 · 415 posts · 484 votes
    15y

    What "previous buyer?" Were you the seller for this previous buyer?

    Did they kick out of their deal with you because of the results of the inspection? If so, didn't they say specifically why they were doing this?

    As for the previous report, it's usually valid only for the one requesting and paying for it. I'm not sure they are allowed to use it for this purpose.

    If they did their own inspection report, which it sounds like they did, shouldn't their inspector have found this termite damage? And if their own inspector didn't find it, why should they assume that you would know about it?

    How much are they claiming in damages?

    0Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    15y

    They may be looking for a cash settlement. It might be worth some amount to you to make it go away now, even though you had no knowledge. Or on the other extreme, call their bluff and let them sue you. Did the contract call for mediation in case of a dispute?

    0Reply
  • Robert Steele
    OP
    Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
    15y

    Yes that is a little vague. By "previous buyer" I mean the people who got my property under contract prior to the buyers in question. When they backed out they would not tell us why. We wanted to negotiate the price lower but they were not interested. We assumed that they just got cold feet or buyers remorse.

    I agree that if their inspector did not find the termite damage that it would be unreasonable to assume that I would. Who the hell knows - it may not even be termite damage and they are just thinking it is.

    They are not claiming damages or asking for money at this time. I am willing to call their bluff but the sales contract stated that we do mediation. However I thought that was only during the purchase period not forever after?

    Yeah it sounds like they may just be fishing for more cash.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    15y

    Is there any proof that the termite damage was pre-existing to the sale date? Could it all be post-sale damage? After all, termites do have an appetite to devour all cellulose-based materials ...

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  • Robert Steele
    OP
    Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
    15y

    Yes. As I said, they got a copy of the inspection from the previous buyer who backed out. It included a WDI report which states that the termites were active at the time.

    Their inspection report states previous termite damage in the same location.

    They are asking us to pay for a full treatment with an operator of their choosing ~$2K.

    They are assuming I knew and covered it up. I did not. But I can see how it could be construed that way and I can see how they would be upset. However it seems to me that they knew as much as I did as their inspection showed termite damage and they asked us to treat it prior to close.

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  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    15y

    Reading the OP, I kinda jumped down here. If you were saying that your wife saw the report and knew it I believe the judge will call that constructive notice since it was your wife and she probably had to sign something to sell the property as well. So, IMO, you're had.

    0Reply
  • Robert Steele
    OP
    Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
    15y

    My wife did not see the report. She saw the damage which looked to her like water damage. She is not qualified to determine the presence of wood destroying insects.

    So we asked them to provide us with the WDI they claim says their were active termites. They cannot produce it as the company that did the inspection wont release it to them as they did not pay for it.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    15y

    Okay, may have misunderstood. I have seen these issues before. While a bank makes the claim and discloses that they have not knowledge of defects, I have seen individuals do the same thing and lost out, as it usually boils down to what is reasonable for that seller to know. I would think if you disclosed the damage as water damage, you'll be better off, but if nothing were disclosed....well.....you might have mentioned that and I may have missed that.

    My only point is the standard is higher for individuals and especially Broker/Realtors than an institutional seller.

    You may hav a unique case, your buyer had the opportunity to find the problem too. I would suggest you ask an attorney in that area how these are usually viewed and the degree of responsibility in disclosures. An attorney may know how that certain judge views these cases and from there you can make your decission to work something out or fight it all the way. Good luck....

    0Reply
  • Mike Neyman
    Real Estate Investor · Cleveland, OH · Member since 2010 · 31 posts · 18 votes
    15y

    I think the important point here is that the buyers' own inspector found termite damage. They decided to go ahead with the purchase anyway.

    Are they now claiming that they didn't know? If so, the report should prove otherwise. If buyers admit that they knew and want to be compensated after closing, I think they're out of luck.

    4Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    15y

    From what I am reading here a report was found to have termites. Your wife looked at the area and thought it was wood rot so had taken out and put new wood in it's place.

    The current purchasers are saying you did not disclose termite damage in the location.The buyers can accuse you of "fraudulent concealment" which is trying to cover up a known problem.

    If you simply took out wood rot and did not disclose that this was an area you thought was wood rot but were not sure then it could come back on you.

    If you are unsure you always disclose.This puts it back on the buyer to their "right of their own inquiry".If they fail to pay and do due diligence before a purchase then it's on them.

    If their termite report showed no damage in that area the termite inspector could say the seller covered it up with new wood.

    It's pretty easy to see if you have active termites versus wood rot so your wife claiming ignorance in my opinion in would not stand up in a court of law.

    I am not giving legal advice but it seems from the sellers stand point you could have handled this much better.If you were unsure about that area you could have had an acknowledgment signed before closing by you and the buyers.

    They then might have backed out of buying.If you made 20k profit and you have to settle for 1k you are still ahead of the game.

    You have to live and learn.No legal advice.

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  • Matt R.
    Real Estate Investor · Sunnyvale, CA · Member since 2010 · 79 posts · 53 votes
    15y

    So, if despite their own report showing termite damage they went ahead and bought the property - what's their complaint ?
    Why are they complaining now (6 months later) and not 6 days after the sale ?
    I'm just plain confused

    0Reply
  • Account Closed
    Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
    15y

    I don't see how the buyers can say they didn't know about the termites before closing on the purchase. If this came up on the buyers inspection report they already knew about the issue. It was disclosed to them in the inspection report.

    0Reply
  • Paul B.
    Real Estate Investor · Alpharetta, GA · Member since 2010 · 415 posts · 484 votes
    15y

    I think the termite damage in question is in a different part of the house than what was reported in the buyer's report.

    This all appears to have been handled just a little sloppily. I'd tell them what you told us, that you did not disclose what you did not know, but you see their side and how they could assume that you were trying to cover this up.

    Without having seen your contract, I'd offer them $500 as an act of good faith to avoid dragging this out. Make sure that they agree that they have no further claims in the future.

    0Reply
  • Matt R.
    Real Estate Investor · Sunnyvale, CA · Member since 2010 · 79 posts · 53 votes
    15y

    I think Paul's solution makes sense but really - you find termite damage in the kitchen (for example)...wouldn't you have to assume that the whole house is potentially affected.

    (Still not clear on where the buyer's head is)

    0Reply
  • Jon C.
    Real Estate Investor · Phoenix, AZ · Member since 2008 · 74 posts · 14 votes
    15y

    I have no solution but this thread is interesting and confusing. There are some things i do not understand. Lemme see if I can clarify it.

    Buyer A got their own inspection done, which showed termite damage. However, this was never told to you. You wife, completely independent of any report or notification, saw the same damage and thought it was rot. Were you made aware of this damage during this time?

    Then Buyer A pulls out for unknown reasons. They never mentioned the damage, right?

    Buyer B comes in and buys the place. Am I correct that no inspection was done by this buyer? Or at least nothing was mentioned about a problem? You said it was sold a couple months ago. Then they get a copy of Buyer A's inspection. How did they get this? Especially since that inspection company now won't release it to anyone.

    0Reply
  • Robert Steele
    OP
    Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
    15y
    Originally posted by Jon C.:
    I have no solution but this thread is interesting and confusing. There are some things i do not understand. Lemme see if I can clarify it.

    Buyer A got their own inspection done, which showed termite damage. However, this was never told to you. You wife, completely independent of any report or notification, saw the same damage and thought it was rot. Were you made aware of this damage during this time?

    I am not sure what Buyer A got. Buyer B is telling me this. Apparently the WDI company is willing to tell B over the phone but not release documentation. Wife did not notice this damage until after Buyer A backed out. I was not made aware.

    Originally posted by Jon C.:

    Then Buyer A pulls out for unknown reasons. They never mentioned the damage, right?

    Correct.

    Originally posted by Jon C.:

    Buyer B comes in and buys the place. Am I correct that no inspection was done by this buyer? Or at least nothing was mentioned about a problem? You said it was sold a couple months ago. Then they get a copy of Buyer A's inspection. How did they get this? Especially since that inspection company now won't release it to anyone.

    Buyer B got their own inspection which stated previous termite damage in both locations (including the one in question). I do not know that they have Buyer A's inspection report - I am assuming they are referring to the WDI given verbally over the phone.

    Thank you everyone for your comments. I think the Buyer had every opportunity to do their own due diligence and order a WDI after their general inspection found termite damage. However that said, given the appearance of impropriety and the fact that my wife is a Broker it is entirely possible that if this goes to court they will side with the poor innocent buyer as apposed to the greedy conniving Broker's husband/Landlord. I will try offering them $500 to go away.

    0Reply
  • Robert Steele
    OP
    Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
    15y

    I got a reply back from a RE lawyer and here's what he said:

    The sales contract doesn’t “die†exactly, but it is merged into the closing documents. You, the seller, makes a representation as to property condition in paragraph 7.B. Paragraph 19 says that those representations will be true as of the Closing Date. Paragraph 9.D. states all representations will survive closing. So contract obligations are merged into the closing documents (don't survive the closing). Misrepresentations do. Since the buyer knew of the defect, then bought anyway, he will have a difficult time prevailing in a law suit. Your risk is always there, though. Especially if the buyer has a friend that's a lawyer.

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    15y

    Was the area your wife the "broker" described as WOOD ROT- TREATED for termites before she replaced the wood there??

    Who represented the buyers in this transaction??

    Were you the seller represented by your wife and the buyers unrepresented or did your wife represent both parties in the sale??

    I tend to disagree with the lawyer in that saying something is "Wood ROT" when it is an active infestation and just replacing the wood to me whether it is intended or not is "fraudulent concealment".

    Also they could claim you misrepresented and "adverse material fact" with the property.

    There is also another sticky part to this in that your wife is a licensed broker.The buyer could file a complaint with the state real estate commission.They will investigate and could sanction or suspend her license.

    This thing could turn into a HUGE MESS.

    You could tell the buyer you won't pay for anything and see how they respond.They could then sue you.

    As I said before instead of trying to be RIGHT you need to find the best solution to learn and move on to the next deal.

    It will not only be the money involved but also the TIME it takes away from you doing more deals and your wife doing more real estate transactions.The cost of time in court,emotional stress,and lost potential revenue makes it worthwhile to settle out of court.

    Have an attorney cover you with no future recourse waiver in writing signed by all parties.

    Was this attorney a general real estate attorney or a "litigation real estate attorney" that all they do is handle disputes??

    I wish you the best and no legal advice.

    This is just my opinion based on what you have posted.

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    1Reply
  • Robert Steele
    OP
    Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
    15y
    Originally posted by Joel Owens:
    Was the area your wife the "broker" described as WOOD ROT- TREATED for termites before she replaced the wood there??

    Unknown.

    Originally posted by Joel Owens:

    Who represented the buyers in this transaction??

    The buyers Realtor.

    Originally posted by Joel Owens:

    Were you the seller represented by your wife and the buyers unrepresented or did your wife represent both parties in the sale??

    My wife only represented me.

    Originally posted by Joel Owens:

    You could tell the buyer you won't pay for anything and see how they respond.They could then sue you.

    We did. They went quiet for a while. Got the termites treated and are asking us to pay or else.

    Originally posted by Joel Owens:

    As I said before instead of trying to be RIGHT you need to find the best solution to learn and move on to the next deal.

    It will not only be the money involved but also the TIME it takes away from you doing more deals and your wife doing more real estate transactions.The cost of time in court,emotional stress,and lost potential revenue makes it worthwhile to settle out of court.

    Have an attorney cover you with no future recourse waiver in writing signed by all parties.

    All excellent points Joel. Especially about finding the best solution, not necessarily being right. To that end we have decided to pay them the money they want with the proviso that they sign the waiver and we never hear from them again.

    Originally posted by Joel Owens:

    Was this attorney a general real estate attorney or a "litigation real estate attorney" that all they do is handle disputes??

    I believe the former and not the latter.
    Originally posted by Joel Owens:

    I wish you the best and no legal advice.

    Thanks

    0Reply
  • Robert Steele
    OP
    Investor · Lucas, TX · Member since 2010 · 620 posts · 352 votes
    14y

    Just following up here. We paid them $700. We had them sign a waiver. It has been about 8 months now. I have not heard from them again. While I don't think I did anything wrong except maybe I could have handled it better it all came down to the advice; find the best solution - not necessarily being right. The price was worth not having this turn into a huge mess. I have told others this with similar problems. That sometimes in the business you just have to pay to make problems go away when in all fairness you shouldn't have to.

    1Reply
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