As a followup to my post earlier this week regarding property disclosures, I got to thinking about the handful of transactions that turned south once the buyer realized that the seller had been less than forthcoming about the condition of the property.
In this case, it had severe consequences for the buyers in the first week of their ownership.
The buyers had a thorough inspection and the seller had disclosed that they had a few inches of water in the basement a few years prior to the sale. They had filed an insurance claim and because the basement was unfinished, there was what the termed "minimal damage". The insurance quote for the home seemed reasonable and the buyer confirmed that the seller had disclosed this insurance claim.
Fast forward to the week after the closing....the buyers had not moved in yet. They were painting and replacing the flooring prior to moving in. There had been a lot of rain and the buyers decided to go over to check on the house. When they got there, there was almost a foot of water in the basement. Resulting in the need for replacing the furnace and the water heater. When they started talking the to the neighbors, they found out the real truth. The basement had flooded more than once, that is why the seller had not finished it.
The buyers, frustrated, called me and I called the listing agent. The listing agent talked to the seller and the seller sent their insurance claim paperwork to show that they had "fixed" the issue. On that paperwork, it stated that the sellers had reported that the water in the basement was over 8 inches and the seller had claimed a loss in excess of $5000 in antiques and other belongings. So the seller lied on the disclosure. 8 inches is not the same as "a few". And the seller had not "fixed" the issue, just replaced the parts in the furnace as the bare minimum and pocketed the rest of the insurance settlement.
The buyer paid to have the furnace and water heater replaced through their insurance, but that was not going to fix the underlying issue. After several estimate, the only solution was to have a second sump pit, tiling all the way around the house, and to add a backup sump pump with an alarm as well. The cost of this remedy was about $4500 and would not be covered by the buyers insurance because it was a pre-existing condition that the seller's insurance had already paid out. We sent a letter through a real estate attorney for the seller to pay to have this completed for the buyers. After a few days, the seller agreed to pay the cost. Especially since the attorney stated that the buyers could go after them for much more in court due to the disclosure indiscretion. This was the one time where the insurance company record was able to validate that they sellers outright lied on their disclosure. And the best part was that the seller did not realize that they were handing us the key to their own demise. Like they didn't remember what the disclosure said at all.
No good comes from a lie. Sometimes you can get away with it and make it to closing. But if an insurance claim was filed, there is record of your claim that follows the house, not the person that filed the claim. Better to disclose anything that you know.