Anyone who has bought or sold residential property is likely familiar with the Residential Property Disclosure Form. It is a form required by statute to be completed by the property seller, and its purpose is to reveal to potential buyers any and all structural, water-related, or other material defects in the house they are aware of.
The practical effect of a Residential Property Disclosure Form is generally modified by the terms of the Purchase Agreement. Many contracts contain language permitting the buyers to inspect the house. These provisions often state that the seller shall correct any conditions found by the inspection, but if the seller does not correct them, the buyer can either terminate the agreement or accept the property in its “AS-IS” condition.
In a recent Lake County case, the sellers completed the Disclosure Form for the sale of their house, noting a 2006 flood and some repairs as a result of standing water, but that they were unaware of any material problems with the foundation or basement. Notably, much of the basement was finished and covered with drywall, and had been so since the sellers originally moved in. The buyer made an offer conditional upon an inspection with the “AS-IS” language above. The inspection revealed a bowing foundation wall and a few other issues. The parties split the cost to repair the bowed wall and proceeded with the sale. Thereafter, the buyer’s agent inquired with the sellers’ agent about any other problems with the foundation or basement that were not mentioned. The sellers’ response was that all necessary disclosures were made.
After the sale closed and the bowed wall was repaired, a City inspector assessed the work, found other concerns with the basement wall, and recommended destructive testing to confirm any other latent defects. The investigation found a 30-foot long horizontal crack and dampness in the foundation walls, which were behind the drywall. The buyer filed suit against the sellers and their agent, claiming misrepresentations by the sellers. The courts ruled in favor of the sellers.
Key to the court’s analysis was the buyer’s election to proceed with the sale after the inspection and bowed wall repairs. The buyer argued that she relied on the sellers’ alleged statements that there were no other problems with the foundation or basement. However the court ruled that a buyer must justifiably rely on any seller’s false statement. “A buyer cannot be said to have justifiably relied upon misrepresentations made by the seller where the agreement is clearly contingent upon the inspection rather than any alleged representations.” Implicit also in the decision, though, was that the buyer could not prove that the sellers actually knew about the 30-foot crack or the dampness in the foundation. The bottom line is for buyers to ensure they know the terms under which they are buying the house, get a well-qualified inspection after the offer is accepted, and exhaust all issues following the inspection.