Suing a Seller for Non Disclosure

Get your proof ready if you are suing a seller for non disclosure of a home defect after buying a home. Also, don’t forget about time limits.

By Ilyce Glink and Samuel J. Tamkin

A few comments and questions from this week’s email inbox.

Comment: You hit the nail on the head in your recent column where a homeowner had problems with a septic system that a seller failed to fix after closing. You were right to say that an attorney needs to prove a seller disclosure law violation.

Get Seller promises in writing and holdback funds

The buyer and seller must sign a Residential Real Property Disclosure Report unless, of course, the property is an “AS IS” sale. If the report was tendered to the buyer and the seller did not disclose the “material defect” to a septic system, it is obviously a violation of this Act. Most states define a material defect as “substantial property devaluation (perhaps 5 percent of property value) or death threatening defects.”

However, no action for this Act violation may be commenced after one year from the earlier of property possession or deed recording. So, in this case, the time has lapsed to begin legal proceedings.

The buyer should have gotten the seller’s commitment in writing at closing since all parties knew of the defect at that time. Buyer should have never gone through with closing unless he had big bucks and didn’t care.

Response: Most states require a seller to deliver a disclosure report in residential sales to buyers. But how do you know what you should or must disclose? Some states require disclosure of material defects but many don’t explain what a material defect is. If you discover a defect that affects the purchase price of the home, you’d think the seller had an obligation to disclose the defect to the buyer.

That’s not clear in some markets. Let’s say you have a hot market. A buyer closes on a home, paying $250,000 for the property. Let’s also say that home has an undisclosed defect that would, in a more balanced market, cause the home value to drop by $25,000, to $225,000. However, in today’s generally overheated market, that home might be worth $300,000, with or without the defect.

Defining what a seller must disclose

We’d hope a court that looks at these kinds of cases would rule that a seller who knowingly sells a home with a $25,000 undisclosed material defect would find that the seller violated the seller disclosure requirements. But you don’t know for sure what the outcome of any litigation will be.

You are correct to point out that each state sets its own statute of limitations for seller disclosure problems. The statute of limitations gives a buyer a certain amount of time to bring suit against the seller for a violation of the seller disclosure laws. The buyer must bring suit against the seller within that period of time. If the buyer doesn’t, the buyer loses the ability to sue the seller for violating the seller disclosure law, even if the buyer didn’t discover the problem until after the statute of limitations had expired.

You must sue a seller before your time runs out

So if the state seller disclosure law gives a buyer one year after closing to sue the seller for a violation, and if the buyer discovers the problem after that first year, or finds the problem during the first year but fails to go after the seller, the buyer is out of luck.

You need to know how much time you have when suing a seller for non disclosure

As we’ve said many times over the years, proving that the sellers knew or should have known about a material defect, is tough enough. Sitting on it for a long time (we once got a letter from an owner who thought about what to do for a decade before reaching out for advice) only compounds the problem.

Our best advice: buyers who suspect their sellers failed to disclose a material defect should immediately consult with a local real estate attorney.