An Obvious Defense, Overlooked By Many.  By Jen Hudson

Note: The names have not been changed, as neither party is innocent.

Terry and Diane Visser lived in Blaine, Washington and had a habit of buying homes as investment properties.  They bought one of these “fixer-uppers” as an investment back in 2005.

After acquiring the property and beginning their renovations, they realized the expenses and required repairs for this property went well beyond their original expectations.  With that, they decided to sell it.

As any good seller knows, curb appeal matters.  They completed their renovations and the home looked good.

THE FAIRY TALE.iStock_000003090812_Large

In 2007, Nigel and Kathleen Douglas decided this was a wonderful time to acquire their vacation home.  They worked hard and had negotiated what they thought was a great price at $189,000 with seller financing!  This included a $40,000 down payment and a promissory note to the seller for the balance of $149,000.

Not bad, right?  No credit check to worry about.  No appraisals required.  All they had to worry about was their property inspection.

Nigel and Kathleen met their home inspector at the property.  During the inspection, they noted some wood rot and decay near the roof line.  Some caulking suggested there was a previous repair done at some point.  Beneath the home was an area of rotted sill plate sitting just below another area that showed some water damage to the exterior siding.

The Vissers had not noted any of these defects in their seller disclosure form.  In fact, the Douglas’ didn’t see much of anything in the seller disclosure form that would indicate there was a problem at all.

The Douglas’ were still excited about their purchase, so thought they would just ask the Vissers for some clarification.  After receiving less than satisfactory answers from the seller, they talked about it, but then dropped the issue.  After that, they received their home inspection report.  While this report noted the items of concern around the rot and possible water problems, the Vissers still went ahead and purchased the property without further research.

Of course, as it always happens, they were not aware of the real issues until after they had closed on the sale.

THE PLOT THICKENS.

Eventually they learned the defects were extensive.  They were so severe that it would cost more to repair the existing structure than it would be to tear it down and rebuild.  Not wanting to deal with the mess they found themselves in, the Douglas’ defaulted on the promissory note to the Vissers, stating the house was uninhabitable.

They then brought a lawsuit against the Vissers claiming fraudulent concealment, negligent misrepresentation, violation of the Consumer Protection Act, breach of contract, and violation of a real estate agent’s statutory duties (Mr. Visser was also a licensed agent, so they may as well throw that charge in too!).

Whew!  That’s a whole lot of claims for sure!

After the proceedings, the court did find that the Vissers, in fact, had intentionally concealed the defects in the property and had not disclosed it.  The court also opened their final opinion with the line: “When prospective homebuyers discover evidence of a defect, the buyers must beware.”

Wow.  That’s interesting.

On one side, we have a seller who was trying to flip a property and went to the trouble of hiding known issues and defects.

On the other side, we have buyers who noticed a problem, asked about it, did an inspection, and then defaulted on the loan when they found out the seller lied about it.

What do you think the court said?  What would you say?

THE NOT-SO-STORYBOOK ENDING.

In February 2013, the court concluded that it had substantial evidence to support its findings that the Vissers discovered and concealed a rot problem.  However, they also noted that when the buyer is put on notice of a defect, they must make further inquiries.

In this case, the Douglas’ made no additional inquiries from the Vissers concerning the rot after they received their home inspection report.  The court ruled that the Douglas’ failure to make further inquiry was fatal to all their claims.  (Strike One!)

So, what would have happened if the Douglas’ would have kept asking questions?

Well, we don’t really know.  Would the court’s opinion change?  Maybe.  Maybe not.  At that point, you have to take the issue case-by-case.  In the legal world, they call that the “fact pattern.”

Remember that the Douglas’ had also defaulted on their promissory note to the Vissers for the purchase, right?

The court also determined that the Douglas’ owed the Vissers the full amount of the promissory note plus interest at 18 percent, as was agreed in the terms of the promissory note.  (Strike Two!!)

And, as one final piece to the puzzle, the Douglas’ owed the prevailing party’s attorney fees under the purchase and sale agreement.  (Strike Three!!!  You’re Out!)

While this may seem harsh and unfair, it is also a correct application of the law.

LEARNING FROM OTHERS.

What can we learn from this as a buyer?  It’s obvious.

Caveat Emptor for starters.  You know, the fancy way to say “Buyer Beware”.

If you are thinking about purchasing a property, it is up to you as the buyer to determine if that property is suitable.

You should never ever ever rely solely on a disclosure form from a seller.  If you have ever worked with me, you know I give very little reliance on a seller completed disclosure statement… if we even get one in the first place!  Do your own due diligence and do not waste time doing it. You will be on a short deadline (which is your inspection or feasibility timeline) to decide if your deal makes sense, so hurry up.

What can we learn from this as a seller?  It’s also obvious.

Disclose, Disclose, Disclose! Use that seller disclosure statement and actually tell the buyer about the issues with the property.  Put them on notice, so that the buyer must decide whether or not to pursue the purchase.  Don’t hide things.  That’s bad.

Isn’t there a saying that goes something like… the truth will set you free?  Yeah.

One last thing… remember how the Douglas’ bought the property in 2007, but the court did not issue a final judgement until 2013?  Who wants to spend 6 years of their life going through the legal system?  Not me!

Know how to NOT be that guy?  It’s easy.

Two simple rules will save you time, energy, and dollars.

Rule #1:  Sellers.  Disclose, disclose, disclose!

Rule #2:  Buyers.  Do your own research.

No fancy new aps for this answer.  Just use your head.

If you want to read the full legal decision stuff, you can reference it through the Washington Court of Appeals Douglas v. Visser (Dkt. No. 67242-8 Feb. 25, 2013).

I don’t know about you, but I try real hard to not be the name on one of those fancy court docket titles.

Need someone who tries to work smarter and has a good team of professionals to help you with your research?  I may be able to help.  You can find me any day except Sunday.  Call/text (206) 293-1005 or email: Jen@HudsonCREG.com.

Market Intelligence Matters.

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