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Undisclosed Home Defects: What to Do if You've Bought a Lemon

hsh-lemon-house-cookWhen it comes to real estate, nobody wants to buy a lemon. But what happens if you buy a house and later discover that it has problems which you didn't see at the time of purchase? What recourse for homebuyers exists for you?

A home is a complicated jumble which includes thousands of pieces and parts. There's no such thing as a perfect home, and that includes the newest house on the block. It's also true that as a buyer you have the right to know what you are purchasing.

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Don't like lemonade? Get a home inspection

In most states, home sellers must complete a standard form disclosing their home's known defects. Some states are much more strict about this than others. It may be smart to know how much disclosure your seller is obligated to provide, and understand what they don't have to tell you.

While a seller disclosure form can be useful, buyers are well served by hiring a professional home inspector to examine the property. Always ask if the inspector is a member of a professional association such as the International Association Of Certified Home Inspectors or the American Society Of Home Inspectors.

However, sometimes even a home inspection doesn't uncover a problem. Can you sue a home inspector? Sure, but a home inspector's liability depends on your state law. Unless there is gross negligence or outright fraud, it's a far from sure thing.

Related: Uncovering the Top Home Defects Before You Buy

Warranties & undisclosed home defects

You are likely to find one or more warranties associated with a residential real estate purchase. In general terms a warranty concerns such matters as quality and acceptability. Home warranties can provide reassuring recourse for homebuyers when undisclosed home defects crop up.

In some real estate transactions, sellers provide a third-party home warranty to assure that the home continues in good working condition for perhaps a year. This is a good way for property owners to address buyer concerns about appliances and some systems. Make sure you understand what is and isn't under warranty when you buy a home.

New homes generally come with a 10-year limited warranty. With this type of program, workmanship and materials are covered for one year, systems are protected for two years, and structural components have coverage for ten years.

Warranties are usually limited in some manner and may include a deductible per item per incident. Always read a warranty to understand its conditions and limitations.

What if things go wrong?

If you find undisclosed home defects after the sale, there are some questions to ask. Can you sue your home seller? Can you sue your Realtor? Can you sue a home inspector? What recourse is there for homebuyers?

If a problem crops up that was not disclosed, you may be able to recover damages from the home seller. In some states, you may be able to recover from the real estate agent as well. To have a case, these things must be true:

  • The defect must have been present before you purchased the home
  • It cannot have been obvious, like a huge crack in the ceiling
  • No one disclosed the defect, or they might even have lied or hidden it
  • You relied on the information you received
  • You sustained monetary damages as a result of that reliance

That said, just because you can sue doesn't mean you should. Lawsuits can be nasty events and should be seen as a last recourse. There are other ways to do business.

Related: Complaint Guide for Homebuyers

Alternatives to lawsuits

First, read your sale agreement. What obligations does the seller have? Was disclosure required? Most states have standard forms. If there was place on the form to disclose the item and it was not disclosed, the seller may have an obligation to you.

Second, review your warranties. See if there are separate warranties for appliances and systems. Do they transfer to a new owner in the case of an existing home?

Third, look at the marketing and advertising materials associated with the property. Do they indicate that something was included, but you didn't receive it? Or imply that the property condition was better than it actually was?

Fourth, by any chance does your homeowners insurance cover the problem? If yes, how big is the deductible? Also, do you want to file an insurance claim and possibly impact future rates and your ability to get coverage?

Fifth, speak with the party you feel is at fault. It may be possible to simply resolve disputes through discussion. Perhaps not pleasant, but possible.

Sixth, see if the other parties are willing to engage in mediation, having a neutral third-party try to work out a resolution everyone can live with.

Related: Buying a New Construction Home

Lawyers

If there are no quick and easy solutions to your problems, you may want to speak with an attorney who specializes in real estate. Always ask about fees and expenses.

An attorney will review your situation (the initial consultation is often free) and then suggest appropriate action. Before filing a lawsuit, he or she may send the other parties a demand letter. A demand letter just states your case and demands a specific monetary amount to take care of the problem.

If the amount involved is minimal, you might be directed to a small claims court.

You could potentially sue someone based on any of these principles:

  • Breach of contract
  • Breach of warranty
  • Fraud
  • Failure to disclose (according to your state's statute)
  • Negligence
  • Negligent misrepresentation

If professional people are involved - say real estate brokers, appraisers or inspectors - you might be advised to contact regulators. They often have a recovery fund to pay claims and the authority to suspend or terminate professional licenses.

If the amount is big, it may be necessary to take the matter to court.

In the end, you have to determine just how much time, energy and money you want to devote to the problem. Maybe there are better things to do. As the Romans said, Ars longa, vita brevis. Art is long, life is short.

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