Mr. and Mrs. Visser purchased a single family residence. Their goal was to quickly fix-up the property and re-sell it for a profit. They discovered many defects as they did those repairs. Instead of making thorough and complete repairs, they did the minimal amount of work and effort and, it appears, hid many defects in an attempt to actually conceal defects from the ultimate purchaser of the property.
At some point in those repairs the Vissers’ handyman informed them that the rot in the bathroom floor was so bad that he couldn’t get any screw to stick in the sub-floor. “Do whatever it takes to get the floor covered”, Mr. Visser told his handyman.
In addition, the sill plates at the foundation line were full of rot to the extent that Mr. Visser covered over that area of the house with a decorative band of trim wood covering the whole surround of the home to hide the nature and extent of the rot and decay.
The buyer asked for and received a Form 17 from the seller, but there were many “Don’t know” answers. Even upon request from the buyer, the seller was reluctant to respond to requests for more information. We can certainly understand why.
The buyer also engaged an independent pre-purchase inspection of the property at their cost and expense. The inspector failed to discover all the rot that was covered up by Mr. Visser, but DID discover some rot in the roof joists area above. The inspector didn’t investigate any further upon pointing out the rot in the roof area to the buyers and advising them or proposed actions in relation to those defects.
After closing the buyer discovered an endless array of defects and rot and concealment. They sued the seller for fraudulent concealment and won at trial. They won big including their attorney fees and costs. That is not the end of this story.
WHAT HAPPENED TO VISSER ON APPEAL?
Mr. and Mrs. Visser appealed to the Division One Court of Appeals. Upon appeal, the court threw out the Douglas case against Visser for concealment. Why? The rule is: When a buyer is put on notice of a material defect in the property, the buyer has the affirmative duty to further investigate.
The Court ruled that Mr. and Mrs. Douglas were put on notice by their own inspector about rot on the premises, but did not further investigate. They had a duty to conduct such further investigation, and since they did not do so, the seller would not be held liable for buyer’s damages arising from that lack of investigation. Caveat emptor, Let the buyer beware! Oh I bet you are all upset as you read this article. The rule in Washington is now simply in a real estate purchase and sale when a buyer discovers a defect, that same buyer must affirmatively further investigate further ramifications of such defect or will be barred from seeking any redress from the seller under contract remedies.
SELLER’S DISCLOSURE REQUIREMENTS IN WASHINGTON STATE
Caveat Emptor generally means “let the buyer beware” and places all burdens of investigation on the buyer. That level of “risk burden” has been softened over the years with such things as the required Seller’s Disclosure Statements [our trusty Form 17]. At least many thought so.
Because of certain cases recently published in Washington [particularly the case of Douglas v. Visser above], Real Estate Licensees are advised to understand that Washington Courts are in a state of uncertainty. Real estate licensees representing purchasers or acting as a dual agent should advice buyers to conduct thorough inspections of any real estate before they purchase it.
It has become obvious through Washington State Court decisions that Washington is currently a “Buyer Beware” state when it comes to the purchase of residential real estate.
This position has been clearly defined in two court decisions: Alejandre v. Bull, 2007 and Douglas v Visser, 2013.
Seller’s Disclosure Statement / Material Facts:
The stated purpose of Washington State’s Seller Disclosure Statement [Form 17] is to disclose material facts regarding the property to a buyer. A material fact is defined as a defect in the property that is not obvious or readily apparent, and would negatively affect a potential buyer’s decision to purchase the property.
Although the purpose of Form 17 is supposedly to protect buyers, the results have been far from satisfactory and have often helped sellers.
There are several reasons for this:
1. It is expected that buyers will do their own “due diligence” when purchasing a home (Alejandre);
2. Sellers are not required to disclose the “degree” of a problem;
3. If buyers become aware of a material fact on their own, it becomes the buyer’s obligation to investigate the problem (Alejandre); (Visser);
4. Sellers have no obligation to investigate “material facts.”
One might think that the seller disclosure statement [Form 17] has created more problems than it has solved. What has happened is that buyers have over time created a false sense of reliance on Form 17 and they believe that they can use it to “go after” the seller.
There are two problems that require attention:
1. The seller disclosure statement creates a false sense of security for buyers, in that they feel the disclosure represents a true picture of the condition of the property. This is true.
2. Most buyers believe that if the representations on the disclosure are inaccurate or fraudulent that they will be able to initiate a legal action against the seller. For the most part, state courts do not support this position.
In both of the cases cited above, the court has made it very clear that it is the buyer’s obligation to prove diligence. It does not help the buyer to prove the seller’s lack of diligence. Buyers have a duty to follow up on every defect that is found. If a defect that is far more extensive than the buyer thought is discovered, the court will see it as a lack of diligence on the part of the buyer, and the buyer will have no claim against the seller. This may appear cruel, but it is the state of the law in Washington State today.
Happy Investing!
Today's guest blog is courtesy of Ed McFerran at McFerran & Burns
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