DISCLOSURE OF DEFECTS

In This Article
Disclosure Laws
Material Defects
Environmental Problems          View all articles on IS IT BUILDABLE? 

In the old days, the principle of caveat emptor (let the buyer beware) applied to most real estate transactions. It was the buyer’s responsibility to thoroughly inspect a building or piece of land before purchasing. The trend over the past few decades has been to require sellers to disclose significant defects.

DISCLOSURE LAWS
Most states now have fairly rigorous disclosure laws for real estate sales and require sellers to fill out a disclosure form listing known problems. Some states exclude from disclosure requirements  patent defects – obvious problems that a conscientious buyer can plainly see or uncover without digging too deep. Disclosure laws generally apply to real estate agents as well. If you ask them a factual question about a property, you can expect a factual answer, to the best of their knowledge.

As laws vary considerably from state to state (California requires sellers to disclose recent deaths on the property and neighbors’ barking dogs), and may differ for buildings and vacant land, it makes sense to bone up on the real estate disclosure laws for your state. Whether or not the law requires such disclosures, it is generally a good idea to make disclosure of material defects a contingency of your offer – ask your lawyer about the specifics in your state.

 MATERIAL DEFECTS
Most states now have laws requiring sellers to disclose any material defects (those that may affect the value of the property) that they are aware of.  However, the burden is still on you, the buyer, to verify what you are told – and to determine if there are problems the seller is not aware of or is hiding.  Maybe you can sue later based on the seller’s failure to disclose that the lot was formerly used as an auto dump and needs an expensive cleanup of toxic soil, but you probably have better things to do with your time and money.

The law distinguishes between patent defects, which could be discovered by the buyer through a reasonably thorough investigation, and latent defects which are hidden. Buyers are generally expected to discover patent defects on their own – another reason why you need to conduct a thorough investigation of a piece of land before making a bid.

ENVIRONMENTAL PROBLEMS
Hidden environmental problems can carry high costs for cleanup, as well as potential liabilities. If you buy a piece of land with toxic waste, it becomes your responsibility to deal with it.  If you have reason to believe that other structures existed on the land in the past, or that it was used for farming or industrial purposes, ask the seller to provide a signed statement certifying that the land is free from toxic materials, buried tanks, or other buried items or materials.

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Comments

  1. Realtor Mislead About Perc Test

    I bought a lot that that was said to perc, and was sold with 2 adjacent lots. However, the replacement leach field site is not acceptable as it is over the water line. Therefore I have to use the adjacent lot, which costs $32K, for the alternate site. Can I sue the real estate agency and the person that performed the original perc tests?

    • buildingadvisor says:

      Sorry to hear about your situation — sounds very frustrating. This is very much a legal question and I am not a lawyer. You would need to contact a lawyer in your area for professional advice.

      In general, anyone can sue anyone for anything in the US, but that doesn’t mean it’s a good idea. The important questions are how much time, energy, and money would you need to put into a lawsuit, what are your chances of winning (or reaching a favorable settlement prior to litigation), and what would you potentially gain if you win the lawsuit or settle out of court. The vast majority of lawsuits are settled by negotiation before going to court since the costs and risks of going to court are rarely justified unless there is a lot of money at stake – usually in the tens of thousands of dollars or more.

      Legal issues around real estate transactions are rarely clear-cut and depend on state laws, which is one reason you need to contact a local lawyer with extensive experience in real estate litigation.

      Also, perc test procedures vary widely from one city and town to another – ranging from dumping a bucket of water in a hole in the ground to a very formal procedure conducted by an engineer and witnessed by a town official. It’s quite possible that the site passed the test, but that a septic system design was never completed and approved. That is typically when the issue of a replacement field would be raised.

      It’s possible that you could fit the primary field and replacement field on a single lot if you redesigned the septic system with a smaller footprint — for example leach pits rather than drain fields or used a more compact alternative septic systems. In certain cases, a town may allow you to designate the same leach field as both the primary field and the replacement field. Talk with a septic system designer and your town’s health department about possible workarounds.

      There are a number of potential issues to consider:

      • What are your state’s disclosure with respect to land sales?
      • What disclosures were made in the P&S that you signed when you bought the land? Did the seller or real estate agent warrant that the land passed a perc test and was buildable?
      • Does the P&S include a clause requiring binding arbitration of disputes?
      • When was the original test done? Were the results still valid? What disclaimers were written in the report?
      • What did the real estate agent know about the perc test and what, exactly, did they tell you about the perc test results? Was it verbal or in writing? Many agents are not familiar with the details of vacant land sales.
      • Did the real estate agent intentionally mislead you about the perc test and buildability of the land?

      Despite the bad reputations that lawyers have, I have found over the years that most lawyers are responsible professionals who will tell you early in the process what it would cost to file a lawsuit, what is the likely outcome including the costs, risks, and rewards. Usually an hour or two of their time is all it take for them to evaluate your situation and tell you whether it might make financial sense to file a lawsuit

      Start with a phone call to see if your specific problem is an area of expertise of the lawyer, what they would charge to meet with you and evaluate your situations, and whether this sounds like someone you would want to work with. Ask what you should bring to the meeting to make the best use of their time.

  2. Nancy Kontos says:

    Should City Have Disclosed Buried Concrete?

    We bought land from the city to build on a year ago. We broke dirt this week to find that someone buried concrete under the dirt! Is it not up to the city that sold it to us to fix this? Should they not have known or disclosed it? The records on the land only go back to 2000. It’s 2,000 cu ft. of concrete and will cost $45,000 they want to move it! Is there anything we can do?

    • buildingadvisor says:

      Sorry to hear about your situation — sounds very frustrating.

      Disclosure laws for real estate transactions vary by state, so would need to contact a local lawyer or your state’s dept. of consumer affairs (or attorney general’s office) to find out if you have any legal recourse.

      In the old days, the rule in real estate transactions was “caveat emptor” or Let the Buyer Beware. Nowadays sellers are generally legally obligated to disclose hidden (latent) defects to buyers if they are aware of the problem. Proving that the seller know about a problem is can be tricky.

      Even if the law is on your side, taking your case to court is expensive and winning is never guaranteed. The place to start is a brief discussion with a reputable lawyer experienced in this specific type of litigation. Schedule an hour of his/her time, prepare well for the meeting with as much documentation as you can put your hands on, and the lawyer should be able to tell you whether it might be worth taking legal action, as well as the costs and the risks involved.

      Contrary to popular opinion, most lawyers will not take on a case unless they believe you have a good chance of success, and they will be honest up-front about what commitment of time and money you would need to invest. Most lawsuits are settled by negotiation before they go to court, saving both parties a lot of money in legal fees. If you do meet with a lawyer, ask about this as well to get a sense of how this type of case is likely to play out – and whether you can sue for legal fees as well as the cost of removing the concrete.

      Finally, are you sure that the site is unbuildable without removing the concrete? If the site was filled properly and compacted, it is possible that you can leave the concrete in place and build on top of it (without a full basement). You would need an assessment from an engineer (structural or geotechnical) to figure this out, but it might be worth exploring this option.

      You might find these links of interest:
      Disclosure of Defects    
      Building on Filled Land
      http://buildingadvisor.com/building-on-filled-land/     Seller Didn’t Disclose Noise

      Best of luck in finding a workable solution.

  3. Should Realtor Have Disclosed Noisy Business Next Door?

    We recently purchased a home in a quiet suburb to retire in. Next door neighbor runs a flooring business out of his garage. No signs indicate this and a fleet of unmarked vehicles take up residential parking space. I received no warning before the home purchase that we’d be living next to a sawmill with hours of sawing and sanding 10 ft. from our windows (that we have to keep closed in summer due to noise). Nothing was disclosed to us by seller’s realtor. Besides checking the zoning regulations, is there anything we can do? We are in Alberta, Canada

    • buildingadvisor says:

      Sorry to hear about your situation – sounds extremely frustrating.

      I’m not familiar with Canadian laws, but here in the U.S., it is unlikely that this issue would be covered under disclosure laws for real estate transactions.

      Real estate disclosure laws are typically state laws here. The laws typically cover “material defects,” which affect the value of the property, but distinguish between obvious (patent) defects and hidden (latent) defects. If the seller or their agent fails to disclose a hidden defect that you can prove they knew about, then you may have a case. Examples are things like lead paint, asbestos, and other toxic materials.

      However, it usually requires a lawsuit to get compensation under these laws and that is a long and expensive process. You would need to speak with a lawyer or consumer advocate for more information. In the US, most states have a Dept. of Consumer Affairs or something similar to field these kinds of calls.

      The zoning angle sounds more promising. If your area is zoned residential, it is unlikely that this usage is permitted. It sounds like more of a commercial/industrial usage. The trick is getting the local government to enforce the zoning law.

      I would start by looking up your zoning district and a list of allowable uses in the town’s zoning regulations. Sometimes there are gray areas (like is this a “home business” or a “commercial business”) but this sounds pretty black-and-white and would be prohibited in a residential district.

      Assuming that’s the case, I would then contact the zoning department that has jurisdiction and schedule a meeting. I always like to meet face-to-face for these kinds of issues as I have found them to be more productive than a phone call. Your local government might have a formal procedure for filing a complaint, but a simple signed letter with the relevant information may suffice.

      You may need to follow up with a second call or meeting. If the zoning department fails to take action, then you may have to contact a lawyer to pursue this. The goal would be to get them to move their business activities to an appropriate location.

      It’s possible that your neighbor may be in violation of other local laws such as noise ordinances, parking restrictions, etc. It may take some digging to figure this out, but most towns now post all laws and regulations online making this type of research much easier than in the old days. Best of luck in resolving your problem.

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