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John Chapman Law Articles

Business & Estate Litigation

My Seller Failed to Disclose Significant Damage – Now What do I do?

So you’ve found the perfect house, negotiated over the price, dealt with the bank, and finally closed. Now you discovered that you have a major issue with the house/lot that the seller never disclosed. What do you do? There are a number of ways a buyer can protect himself or herself from serious defects, both before and after the closing.

Buyer’s Remedies for Undisclosed Defects

Throughout most of history, the prevailing rule on a sale of a real property was caveat emptor or “let the buyer beware.” Although a seller could be held liable for lying about a property’s condition, a seller had no duty to bring any defects to the buyer’s attention, no matter how serious. This changed in Florida in 1985 in the case of Johnson v. Davis, where the Florida Supreme Court ruled that “where the seller of a home knows of facts materially affecting the value of the property are not readily observable and are not known to the buyer, the seller is under duty to disclose them to the buyer.” Therefore, in order to have a claim against the seller under Johnson v. Davis for a defect, the buyer must prove that: (1) the seller knew of the defect, (2) the defect materially affects the value of the property, and (3) the defect was not readily observable. Each of these elements must be analyzed individually, as each comes with its own issues and problems as regard to proof.

The first element I analyze is materiality. Even if a seller knows of an issue and fails to disclose it, a buyer cannot prevail if the issue is not material. For example, usually the first question I ask if someone says they have a roof leak is how much it is going to cost to fix it. Most likely, an issue which is less than a couple thousand dollars to correct cannot be said to have materially affected the value of the property. This is because the test is an objective one – it is not relevant that if YOU wouldn’t have purchased the property had YOU known of the issue. It has to be some defect or condition that to most people would affect the value.

The significance of the materiality element is demonstrated by the damages recoverable for the failure to disclose. While often it is argued that the seller’s damages are the cost to correct the defect, the true test is the diminished value of the property because of the defect. In other words, the buyer should be made to prove, with expert testimony from an appraiser, that the house is actually worth less as a result of the defect. This can be a very difficult burden and will often come down to a battle of experts.

The next element, whether the defect or issue was readily observable, means that a seller needn’t disclose something that is readily apparent. An obvious defect, such as a gaping hole in a living room wall or that the house is next door to a landfill, need not be disclosed by a seller. A buyer is deemed to have knowledge of obvious and open conditions, whether or not the buyer personally observed the condition.

What is “readily apparent” however can also be the subject of litigation. In the 1997 Florida Appellate Court case of Nelson v. Wigs, the buyer experienced significant flooding which the seller did not disclose. The court found that the seller had no duty to disclose the flood-prone nature of the property since the information that the property was subject to seasonal flooding and was located in a flood zone was available through the public records. Although I believe this to be an extreme example, it shows that a seller must conduct extensive due diligence, even reviewing the public records and regulations, prior to closing.

The toughest element to prove is usually the seller’s knowledge of the defect condition. Occasionally, a seller’s direct knowledge can be proved through the discovery of evidence such as proposals or quotes for repairs that the seller put off because of the cost or the anticipated sale. More often, however, knowledge is proved by circumstantial evidence, such as evidence of an attempt to conceal a problem or defect. Examples are new paint to cover leaky walls or ceilings or new drywall or tile installed over rotten wood. In these situations where a seller has “actively concealed” a defect, he or she could be liable for additional damages- including punitive damages.

Quite often, a seller’s response to a claimed defect is that there was a problem but, to the seller’s knowledge, the problem had been repaired. This was the case in the 1998 Florida Appellate Court case of Spitale v. Smith, the court ruled in favor of the seller where he testified that he was aware of a roof leak, thought it had been repaired, and was unaware of a recurring problem. If the court does not believe that the seller knew of a continuing problem, the seller will not be held responsible.

What about an “as-is” sale, does the seller have any duty to disclose? In 1990, the court in Levy v. Creative Construction Services held in the affirmative. Whether or not a seller has any obligation to contractually repair defects is irrelevant as to the issue of disclosure. A seller in an “as-is” contract must still disclose any material defects known to him.

A seller’s failure to fully disclose issues on the disclosure statement can lead to additional claims as well, including even punitive damages. In the 2001 Florida Appellate Court case of Hinton v. Brooks, the seller disclosed merely that the caretaker had reported some termite activity and it had been treated. In actuality, the property had been treated more than 12 times for termite infestations over a five year period. The court held that a seller’s disclosure was merely the “tip of the iceberg” and found the sellers liable for fraud in the inducement.

Buyer’s Due Diligence Prior to the Sale

The best way for a buyer to avoid problems after the sale is to do sufficient due diligence before the sale. One of the best sources of information is the Seller’s Real Property Disclosure Statement. Although not required for a home sale, the form is a standard Florida Realtor form and is routinely used when the home is listed with a real estate broker. It is surprising how often a buyer will claim that a defect was not disclosed, only to discover later that it was clearly listed on the disclosure statement. There is often some hint to an issue, which should lead a savvy buyer to ask further questions. For example, if the seller discloses that there was a roof leak that has been repaired, ask to see the invoice and then speak with the roofing company. It could be that the repair was just a temporary patch and that the roofing company recommended additional work that the seller decided to skimp on. The buyer should always ask follow up questions, and if the answers are not forthcoming, the buyer should walk away - fast. Further, if a seller gives untruthful answers to the buyer’s specific questions, the seller could also be open to additional claims for fraud or negligent misrepresentation.

Is the seller showing off those brand-new windows or remodeled kitchen and bathrooms? What about that nice air conditioned space on the ground floor of water-front property? Find out who did the work and whether that person is a licensed contractor. Also, even though the standard disclosure requires the seller to disclose whether any work has been done without a permit, it's rare that a seller will own up to unpermitted work. If there are substantial additions or remodeling to the house, the buyer should check the building permits in the jurisdiction where the property is located to make sure that a permit was pulled and that the work passed the required inspections. These are often available online and searchable by address.

The other way a buyer can protect herself is with a thorough home inspection. I suggest the buyers do their homework and make sure the inspector is experienced and licensed. Be aware that the typical home inspection is usually very cursory and the quality of inspectors varies greatly. If you have some specific concerns you should bring these to the inspector’s attention prior to the inspection. If the inspection reveals any issues with major components – such as walls, roofs or foundations, the buyer should hire the appropriate expert, such as a roofer, contractor, electrician or engineer to do a more thorough review and provide an estimate for repair.

In addition to an inspection, a buyer should always get an updated survey – whether or not the lender requires one or if it is a cash deal. The survey is for YOUR protection and will often disclose issues with regard to setbacks, encroachments, or issues regarding common walls or fences. The survey should be compared to the legal description and one should make sure that the property is properly and adequately described in the contract. One should also check the zoning to determine if there is any nonconforming use issues, which can limit the buyer’s right to rebuild or even remodel.

Summary

The best way to protect oneself against conditions or defects is to do extensive due diligence (including a home inspection, survey, and review of the public records) and ask the right questions before the sale. A buyer would also be well advised to retain an attorney, as often an attorney won’t cost anymore than a title agent. Be careful to make sure that you and the attorney understand that YOU are the client. Just because an attorney does the closing does not mean that he or she is YOUR attorney.

Even when the buyer has done everything he or she can, there will be times where defects are discovered only after the closing. When these defects are material, not readily observable, and are those which the seller had knowledge, the buyer can bring a lawsuit to hold the seller accountable.


John Chapman is the principal of The John Chapman Law Firm in Sarasota.  He is Board Certified as a specialist in business litigation by the Florida Bar, is AV rated by Martindale-Hubbell, and has a 10 out of 10 AVVO rating. He focuses his Sarasota real estate litigation practice in the areas construction issue, defects, commission disputes, title claims, and boundary disputes.  Mr. Chapman is a Florida Supreme Court Certified Circuit Civil Mediator, and works with institutions, businesses and individuals to facilitate settlement of disputes both prior to and after the commencement of litigation.   He is also a Florida Supreme Court Approved Arbitrator.

He earned his Bachelor of Science degree from Auburn University and his Juris Doctor Degree from Stetson University College of Law.  While at Stetson, Mr. Chapman was a competing member of the Stetson Moot Court Board and a published member of the Editorial Board of the Stetson Law Review.

Mr. Chapman is admitted to practice in all Florida state courts, the United States Federal Courts for the Northern, Middle and Southern Districts of Florida, the United States Court of Appeals for the Eleventh Circuit, and the Supreme Court of the United States.

He holds the designation of Master Emeritus in the Honorable John J. Scheb Inns of Court.  He is a past member of the 12th Judicial Circuit Unlicensed Practice of Law Committee and the past chair of the 12th Judicial Circuit Grievance Committee.  He is a former director of the Board of the Sarasota County Bar Association and the 12th Judicial Circuit Diversity Committee.  


Mr. Chapman currently serves as the President of the Board of the Humane Society of Sarasota County and is a fifth generation Sarasotan.

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