Most lawsuits in real estate transactions, are the result of buyers feeling that the seller did not tell them all they knew about the house, before they bought it. Most home sellers have no idea how easy it is to land in court with their home buyer. A few steps outlined here can help, if followed properly.
When selling a home, by law, the home sellers have a very serious obligation of disclosing in writing to the home buyer any and all defects that they know about the property. Buyers look at a problem that was hidden from them as cheating them, once they get legal counsel, the nightmare begins, not only does the seller gets sued, most of the time, everybody that was involved on the transaction gets named as co-conspirator.
In court, the attorneys for the buyer will paint this picture of the seller and his agent, and the home inspector and everybody else getting together and plotting their strategy to hide problems with the house from the buyer. They will use ugly words like Deceit, Misrepresentation, Fraud, etc, to describe what you did or did not write in your disclosures. The new buyers will swear that they would have NOT bought this house had they known the many "defects" it had.
Your Realtor will provide you the right forms, it is up to you to fill them out, completely, truthfully and seriously. If you want to keep your money and stay out of court, follow these simple steps with care:
- Spend time looking over the Real Estate Transfer Disclosure Statements and make sure you understand every question before you answer it. The questions in these forms are geared towards making sure you don't miss anything important. Keep in mind that there will be a lot of people reading what you wrote: the home buyers, the Realtors, attorneys... event the judge!
- Make sure you use the most updated forms available for these disclosures. There are changes to these documents every year, those changes are prompted by the new court decisions of the most recent cases. There are thousands of dollars awarded to "injured parties" and their attorneys every year because these disclosures were not filled out properly. One check mark in the wrong box could spell trouble.
- Do not allow anyone to fill them out for you, not the Realtor, or your children or anyone else who is not on title. These are legal documents, treat them with care. Even if you know the buyer is a "friend" who you think you know. You still be treated as a "defendant" if your friend sues you.
- Tell the buyer everything you know about the house, specially if you are the typical DIY (Do It Yourself) type of guy/gal. The rule is simple: "If in doubt, disclose it." A disclosure should be written in a clear and specific way: "... In 1997 there was a leak under the kitchen. We called ABC Plumbing and they fixed it" or "... around 2002 during El Nino rains, the basement flooded, a sump pump was installed by a plumber"
- If you did not take permits for any additions or structural modifications you made to the house, disclose that very clearly. These types of additions or modifications without permits is what puts the new occupants of the house at risk if they do not know.
- I always suggest to my sellers/clients to order a home and a pest control inspection before we put the house on the market. These reports, when provided to the buyer do not only offer a professional opinion, but also act as additional disclosures that you, the seller, provided to the buyer.
- When it comes to disclosing neighborhood noise problems or other nuisances, don't be shy, if you don't disclose that the area has problems with airport noises, or garbage odors from a nearby dump for example, not only would the new owners of the house will find that out within days of moving in, your friendly neighbors will spill the beans just as they greet the new owners with a courtesy visit to welcome them into the area.
- Always make sure that you get a copy of your disclosures signed and dated by the buyers BEFORE ESCROW CLOSES. These signed documents are YOUR protection against future liability.
Buyers do not like to be surprised by material facts that they did not know. In my office, every transaction has at the end a file that contains at least 30 different documents of disclosures. In my 25+ years as a Professional Realtor, I have had to accompany once, one of my clients, a home seller to a lawsuit regarding the answers he gave to a question in the Disclosures that read: Are you aware of any problems with the house before or during your ownership? He answered: NO. The key word here was: before
The previous owners had disclosed to him that the house has had a problem with the foundation when it was being built... 35 years before!,The result of that problem was that the foundation was reinforced better than any other home in the area, and the previous owner nor my client ever had a problem while they lived there. The buyer, however, sued him for non disclosure.
After 2 years of depositions, thousands of dollars in lawyers fees, and countless sleepless nights, the arbitrator awarded the buyers $120,000. Which they used to upgrade the entire house, because there was nothing wrong with the foundation. The legal fees for both parties were paid by the home seller.
But how did the new owner knew? The neighbor across the street come to greet the new owners, and as they unloaded their belongings, she told them the history of the house, and how the foundation gave way, and how it was fixed. The new buyers felt they should have been told, consulted an attorney who made a case and got some money from the seller.
As you can see, you do not have to necessarily do anything wrong, all you have to do to get into legal trouble is to not pay attention when filling out The Real Estate Transfer Disclosure Statements. If you are in the middle of a transaction and escrow has not closed yet, go back and do an ammended document if you found out that you missed something. Even if you have to renegociate something with the buyer, it is a lot cheaper than facing him in court. Good Luck... and good reading too!