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Volume XII, Number 335

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The House We Bought Has Undisclosed Defects – Now What?

The COVID-19 pandemic has had significant, far-reaching effects on people and their lives, including the way real estate is purchased. With emphasis on personal safety and the resulting need for social distancing and quarantining, coupled with an extraordinarily strong demand for homes, buyers have often purchased homes with minimal or no due diligence. Buyers have waived rights to conduct home inspections and various tests, e.g., pest infestation. Unfortunately for some buyers, these circumstances and waivers have given rise to significant problems after the closing. Notably, buyers have discovered defects with the home that often require substantial expenditures to correct. Examples include water infiltration in basements, pest infestation damage, defective roofs, HVAC facilities that are in poor working condition, the presence of mold, and drinking water that is not potable.

So, what happens when the buyer discovers problems of which they were unaware at the time of closing? The answer to this question involves a review and analysis of two key documents used in the purchase and sale process — the Seller Real Estate Disclosure Statement and the Agreement of Sale.

Seller Real Estate Disclosure Statement

The Pennsylvania Real Estate Disclosure Law provides that any seller who intends to transfer an interest in real property is required to disclose to the buyer any material defects with the property known to the seller. The seller is to make the disclosure by completing a property disclosure statement (“Disclosure Statement”) that satisfies the requirements of the Disclosure Law. A signed and dated copy of the Disclosure Statement is to be delivered to the buyer prior to the signing of an agreement of sale.

Key subjects the Disclosure Statement must cover are as follows:

  1. Roof.

  2. Basements and crawl spaces.

  3. Termites/wood destroying insects, dry rot, and pests.

  4. Structural problems.

  5. Water and sewage systems or service.

  6. Plumbing system.

  7. Heating and air conditioning.

  8. Electrical system.

  9. Other equipment and appliances included in the sale.

  10. Soils, drainage, boundaries, and sinkholes.

  11. Presence of hazardous substances.

  12. Condition, if known, and location of all storm water facilities.

  13. Agreement of Sale

In purchase and sale transactions of a home, buyers and sellers often use the Pennsylvania Association of Realtors®’ “Standard Agreement for The Sale of Real Estate” (the “PAR Agreement”), given its general recognition and acceptance throughout the Commonwealth. The PAR Agreement is comprehensive, user friendly, and completed by buyers and sellers, frequently with the assistance of a real estate agent.

The PAR Agreement contains a “Buyer’s Due/Inspections” section that provides for inspections by a buyer relating to various matters including a home inspection, wood infestation, the quality and quantity of water service, radon, on-lot sewage, and lead-based paint, which is a potential concern for homes built before 1978, surveys and deed and use restrictions. Each of the inspections can be elected or waived by a buyer. If the results of any inspection are unsatisfactory, and the seller and buyer do not agree on the corrective measures to be taken, including the party responsible for them, the buyer has the right to terminate the Agreement of Sale.

Significantly, the PAR also contains a “Representations” section. This section states that the buyer has inspected the property before signing the PAR Agreement or has waived the right to conduct such inspections and agrees to purchase the property in its present condition subject to the inspection contingencies elected in the PAR Agreement. In addition, the PAR Agreement states the buyer acknowledges that brokers, their licensees, employees, officers, or partners have not made an independent examination or determination of the structural soundness, age and condition of the property, or a mechanical inspection of any of the systems contained therein.

As additional protection, particularly for real estate agents, the PAR Agreement contains a “RELEASE,” which releases sellers and brokers, their licensees, employees, officers, and partners, from all claims, losses, and demands, including personal injury and property damage arising from defects or conditions at the property. This does not, however, release sellers from liability they may have for violating the Disclosure Act.

The PAR Agreement further provides that the buyer and seller will submit all claims and disputes to mediation, which is usually arranged by and managed by a local Board of Realtors® Association. As background, unlike litigation and even arbitration, mediation is an informal and typically non-binding process in which an impartial person, i.e., a “mediator,” helps the buyer and seller to understand their respective interests and legal options. The mediator is not a decision-maker, but attempts to lead the parties to compromise.

Analysis

Upon the post-closing discovery of problems that the buyer contends he or she was unaware of at the time of the closing, the buyer will be confronted with several options to consider. These include one or more of the following:

  • Contacting the seller and real estate agents that may have been involved for a possible, even if unlikely, resolution;

  • Contacting the buyer’s insurance company for possible coverage;

  • Contacting the Consumer Protection Bureau of the Pennsylvania Attorney General’s office;

  • If there is a basis, filing an ethics complaint with the local Board of Realtors® against the real estate agent or agents involved;

  • Retaining legal counsel;

  • Invoking mediation; and

  • Commencing legal proceedings, which will necessitate the retention of a home inspector as an expert witness. Moreover, the claims that the buyer may bring must be carefully evaluated. There may be a basis to bring claims not only with respect to the Disclosure Statement, but also the Agreement of Sale, including breach of contract, misrepresentations and claims under Pennsylvania’s Unfair Trade Practices Act and Consumer Protection Law, which under certain circumstances allows for an award of “treble,” i.e., triple, damages, and attorneys’’ fees.

What choices the buyer makes and when can be daunting, particularly given that the burden of proof of any wrongdoing is on the buyer, and the costs involved are potentially very substantial. This is particularly distasteful to buyers who have expended huge sums, and perhaps some of their savings, to purchase a home, only to confront more expenditures. The seller, who has received the purchase price (the seller’s retirement fund), may have moved out of the area, and believes that he or she has done nothing wrong, will usually deny any liability, particularly if the buyer has waived the right to conduct inspections. Further, any real estate agent involved will usually deny any liability based on the provisions in the PAR Agreement and a claimed lack of pre-closing knowledge of any problems.

©2022 Norris McLaughlin P.A., All Rights ReservedNational Law Review, Volume XII, Number 271
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About this Author

Practice Group

The real estate and finance attorneys of Norris McLaughlin, P.A. have the experience and depth to handle virtually any type of real estate transaction and development project—large or small.  Our attorneys have a keen understanding of the complex, ever-changing regulations and restrictions that affect our real estate clients — allowing us to achieve our client’s goals in the most cost-effective manner possible.

Due to the complexity of our client’s projects and our ability to provide one-stop-shopping, we often rely on the expertise of attorneys in other practice groups, including, ...

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