Real Cases in Real Estate By Andrea Lee Negroni, Esq. – October 23, 2013 Update

Updates for the Week of October 23, 2013

Seller Not Liable for Fraudulent Nondisclosure of Water Damage Which Was Readily Apparent. Alexander Richards sued Linda Cook and others for breach of contract and fraudulent nondisclosure after he bought a house that turned out to have water damage in the basement. One of the sellers who lived in the house for 36 years said she wasn’t aware of any water leaks other than from a toilet and claimed not to know why her (deceased) father had installed a subfloor in the basement, over the concrete floor.

Richards was something of a straw buyer, buying the house for a relative, Raul Barrios, because Barrios couldn’t get a mortgage. Barrios and his real estate agent inspected the house several times and noticed the subfloor installed over the concrete floor in the basement. They also noticed that old linoleum in the basement was warping and bubbling, which caused them to suspect water damage. Barrios hired a home inspector for a “visual inspection” of the basement, but the inspector was uncertain about whether there was a water problem. Despite their reservations and the inconclusive report from the inspector, Richards bought the house and when Barrios began remodeling, he discovered extensive water damage under the sub-floor and behind the paneling. Water had been leaking into the basement from the outdoor sprinkler system – a second home inspector estimated that this leakage had been going on for about ten years.

After a trial, the court dismissed the breach of contract and fraudulent nondisclosure claims, concluding that the sellers did not have actual knowledge of water damage and that the buyer failed to exercise due diligence in inspecting the house.

In Utah, a seller has a legal duty to disclose defects that are “not discoverable by reasonable care.” Fraudulent nondisclosure requires actual knowledge on the part of the seller. Richards claimed the seller must have known about the water damage because it was so extensive that it would have created a rotting smell in the house, but neither his home inspectors nor his real estate agent noticed any smells in the basement during several visits to the house.

Moreover, even though the sellers knew the linoleum was warping, they thought the warping was because of deterioration over 40 years, not water damage. The buyers didn’t investigate thoroughly; instead, they arranged for a “visual inspection.” The inspector didn’t do any tests or remove any wallboard. Since the buyer was on notice there might be a problem, he was duty-bound to investigate, and he did not. As a result, he lost his case and was socked with $18,000 in defendants’ attorneys’ fees as well.

Richards v. Cook --- P.3d ----, 2013 Ut. App 250 (Oct. 18, 2013) [enhanced version available to lexis.com subscribers].

Real Cases in Real Estate is a periodic update on real estate law, with legal principles illustrated and explained by lawsuits from around the country. The topics are wide-ranging for appeal to a broad spectrum of readers including lawyers, homeowners, investors and the general public. Andrea Lee Negroni, a Washington DC attorney and legal writer with 25 years of experience in financial services and mortgage law, contributes the case summaries.

Followers of Real Cases in Real Estate will learn and be entertained by lawsuits involving nuisance, trespass, zoning violations, deed restrictions, title insurance, public utilities, mechanics liens, construction defects, adverse possession, foreclosure and eviction, divorce and marital property rights, tenants' rights, and more. Real Cases in Real Estate uncovers the unpredictable, amusing, and sometimes outrageous disputes between next-door neighbors, contractors and homeowners, condo boards and residents, real estate brokers and homebuyers, and zoning administrators and developers.

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