Buyer Beware in real estate transactions - 2013 (Washington State)
Over the past decade, Washington courts have made it increasingly difficult for real estate purchasers to hold sellers liable for misrepresented onr concealed defects. The vast majority of buyers today have a false sense of security and do not adequately inspect the property.
Two recent cases illustrate just how far our courts have gone.
Alejandre v. Bull, 2007.
In 2007, the Washington Supreme Court decided a case called Alejandre v. Bull. In that case, the seller had problems with her septic system. The person who came to pump it told her that it was shot, and that she needed to hook up to sewer, which would cost $30,000. Inistead, she put the property on the market for sale.
In her disclosure statement (Form 17), she said that she had had a problem with the pipe to the house but had fixed it. She answered "no" to the question whether there were any defects in the septic system.
The buyer had the system pumped. The receipt stated that the back baffles could not be inspected, but the system seemed to be fine. The appraiser noted that the septic system performed its intended function. The buyer closed without doing any further investigation.
A few weeks after the buyer moved in, the system stopped working. By chance, the buyer called the same person who had told the seller that she needed to hook up to the sewer. The buyer then sued the seller for misrepresenting and concealing the condition of the septic system.
The case went to trial, but the trial judge took the case from the jury and dismissed it at the close of the buyer's case. This happens when the trial judge determines that there is no way a jury could find for the plaintiff.
The decision to dismiss had two parts. The first was the economic loss rule, which has since been abandoned and is not relevant. The second was the buyer's lack of diligence. The Supreme Court ruled that the buyer's failure to follow up and investigate further. Bear in mind that the buyer had a receipt stating that the system seemed to be working but that the back baffles could not be inspected. There was no sign of any problem at the property. But that single statement that the septic pumper could not inspect the back baffles required the buyer to investigate. Failure to do that investigation barred any claim for fraud or fraudulent conealment.
Douglas v. Visser.
On February 25, 2013, the Court of Appeals decided Douglas v. Visser. In that case, the seller was a real estate broker who purchased a fixer house. It turned out to be too much work. Much of the structure of the house was rotten to the point that the workers could not get nails to hold. The seller told them to make it look good and cover it up.
The buyer's inspector noted three small areas of rot. But the inspection report said that they were not structural and that the buyer should deal with them if the rot spread. After closing, the buyers discovered that the house was uninhabitable and essentially had to be rebuilt form scratch. They sued the seller.
This time, they buyer prevailed at trial. The trial judge found that the seller had committed fraud and awarded the buyer the cost to rebuild the house. The seller appealed.
The Court of Appeals reversed the trial judge's decision and sent the case back for the trial judge to dismiss the claim and award the seller attorney fees. Once the buyers were aware of some rot at the house, they we required to investigate further. It did not matter that the discovered rot was minor and in a different location.
Buyers in residential transactions these days receive disclosure statements from the seller. Most buyers assume that these are accurate and rely on them. Most buyers assume that they will have a remedy if the seller's disclosures are fraudulent.
But before a buyer has any remedy, he or she will have to prove diligence in light of the information that was provided. It is the buyer's burden to prove diligence, not the seller's burden to prove a lack of diligence.
When you are purchasing a home, you should assume that you have no real remedy for any misrepresentations by the seller. You have a duty to follow up on every defect that is found and every uncertainty about the property. if you could have discovered the truth with diligence, you will have no claim.
Bear in mind that this is true even for cases of overt, intentional fraud. Sellers and attorneys representing them defend misrepresentation cases by blaming the buyer, and it works. The first sentence in the Douglas v. Visser case is: "When prospective homebuyers discover evidence of a defect, the buyers must beware." Remember this the next time you purchase a home.