I have a question about disclosure. My sellers gave me a disclosure statement that said there were no defects in the home. After we moved in and took down some drywall we found big cracks in the basement foundation. We also found major dry rot.
We called our buyer’s agent and she went to the seller’s agent. Apparently, they gave us the wrong disclosure statement. The old disclosure statement in the file mentioned the cracks. We didn’t get any of that. Should the listing agent pay for repairs?
When we usually get these questions, there is lots of smoke but no smoking gun. In this case, it seems you just found one. A seller is supposed to be truthful when answering the disclosure statement for the buyer. The buyer is entitled to rely on that disclosure statement in buying a home. And, if a seller lies, the buyer is entitled to go after the seller for damages sustained because of an omission in the disclosure statement given to the buyer.
Our concern with your question is how much time has lapsed since you bought the property and you discovered the issues with the foundation and dry rot, because there is often a time period (the statute of limitations) after which you cannot bring an action for lack of seller disclosure. (You may still be able to bring an action for fraud, but more on that in a moment.)
So, here’s a brief rundown on seller disclosure: Most states have seller disclosure laws that require the seller to deliver a statement to the buyer listing all known defects in the home. Some states’ required questions are lengthier than others. For example, Illinois’ seller disclosure statement is one page while California’s is several pages.
If the disclosure statement has already been signed and then the disclosure statement is delivered to the buyer, the buyer may have the right to cancel the contract if there are problems disclosed on the form. If you receive the seller disclosure form before signing the contract and the seller updates the form after you sign the contract but before you close, you might have the right to walk from the deal.
Let’s look at what happens when, as in your case, you get a written disclosure, close on the property and find problems with the home you believe should have been disclosed.
There are times when sellers are not aware of material issues. A buyer comes in and as a new owner performs work on the home, changes things, uses pieces of the home differently, opens different windows and often cleans the home more extensively. With that level of use (or cleaning), you could well uncover an issue that the seller didn’t know about.
Let’s say you buy a home from an elderly single person and the seller disclosure shows no problems with the home. You move in with four kids and find out there are problems with the sewer line or septic system. The seller may not have known about the problem, even if it had existed for some time. In this situation, the seller shouldn’t be responsible for the problem and the lack of disclosure.
Your situation seems quite different. It seems that the seller knew of the problems when trying to sell the home previously. Fast-forward to your deal. The seller put up walls in the basement — perhaps, intentionally concealing the foundations problems. Now that you have found the prior seller disclosure form, you found the problem that the home had and still has. This problem should have been disclosed to you. The problem is serious, costly and material. All of these things are relevant for most disclosure issues.
When a window is painted shut and the seller fails to disclose that the window does not open properly, the seller may have had a duty to disclose the problem to you. But it’s also possible that the seller may not have had a duty to disclose due to your own ability to see the problem (the window was painted shut and you should have noticed it) or perhaps due to the severity (or in this case a minor issue) with the home.
The last key to your question is one of timing. Some seller disclosure laws require you to take action against the seller within the specified statute of limitations, perhaps one or two years from the date you close. If you are within this window, you may be able to sue the seller for the repair to your issue. You should also know that you may be entitled to reimbursement of your attorney’s fees if you win under your state’s seller disclosure law, but you’ll need to check and see if that’s covered under your state’s law. If your attorney determines that your situation qualifies as fraud, then the statute of limitations would not apply.
The problem with going down the litigation path against the seller is the time, effort and cost involved. We don’t know how much it will cost you to fix your basement, but we do know that going after the seller may be quite expensive. And, if you win, the seller may or may not have the funds to pay you the judgment you may get against the seller. You have to weigh all of this as you move forward.
Lastly, the listing broker would generally have no idea if something was fixed or not, and it’s not uncommon for a listing broker to try to sell a home over several years and see different seller disclosure forms. We don’t think you’ll get far there when it appears that the seller knew of the problem and may have covered it up. You’re actually lucky that you found the prior seller disclosure form. If the seller has assets, the seller may just want to come forward and pay you for the cost of fixing the basement.
Please consult with a litigation attorney specializing in seller disclosure actions about your specific situation. Good luck.
Ilyce Glink is the creator of an 18-part webinar and e-book series called “The Intentional Investor: How to Be Wildly Successful in Real Estate” as well as the author of many books on real estate. She also hosts the “Real Estate Minute” on her YouTube channel. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them at ThinkGlink.com.