Is the Seller Liable For Water Damage in Basement that was Denied on Disclosure Form?

Full Question:

Seller stated on disclosure form that she had no knowledge of any water intrusion, damage, etc., in the basement of home. Since the basement was mostly finished area with carpeting, furniture and electronics, buyer accepted this statement as true and did not have that aspect of the home inspected. Buyer closed on home on a Wednesday evening and took possession on that Friday when the seller left a phone message for the buyer stating she was out of the house and the keys were in the mail box. Buyer arrived at the house in less than 20 minutes to find about one third of the carpeted area soaking wet and stained by water. Unfinished areas had standing water in about six separate areas and one of those areas had been covered by a carpet remnant. A carpeted and paneled closet area was especially wet and smelled strongly of mildew. The baseboards of that closet were completely soaked and bowed and appeared to have been damaged by water over a long period of time. That closet contained plastic storage bins when buyer first saw the house and during subsequent visits. According to the local television station, there had been precipitation 9 out of the 12 days in June. We highly doubt this is the first time in the seller's occupancy (almost three years) that water had visibly intruded and accumulated in the basement. When seller was informed by the realtor that there was significant water in the basement on the day of occupancy, she replied that there was no problem when she left that same day. Our question is, do we have a case against the seller and, if so, what steps should we undertake to receive compensation that is adequate to mitigate the water problem. So far we have an estimate of $4,000 to install a sump pump system.
06/16/2009   |   Category: Real Property ยป Seller's Dis...   |   State: Ohio   |   #17002


Fraud is generally defined in the law as an intentional misrepresentation of material existing fact made by one person to another with knowledge of its falsity and for the purpose of inducing the other person to act, and upon which the other person relies with resulting injury or damage. Fraud may also be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading.

To constitute fraud, a misrepresentation or omission must also relate to an 'existing fact', not a promise to do something in the future, unless the person who made the promise did so without any present intent to perform it or with a positive intent not to perform it. Promises to do something in the future or a mere expression of opinion cannot be the basis of a claim of fraud unless the person stating the opinion has exclusive or superior knowledge of existing facts which are inconsistent with such opinion. The false statement or omission must be material, meaning that it was significant to the decision to be made.

Sometimes, it must be shown that the plaintiff's reliance was justifiable, and that upon reasonable inquiry would not have discovered the truth of the matter. For injury or damage to be the result of fraud, it must be shown that, except for the fraud, the injury or damage would not have occurred.

To constitute fraud the misrepresentation or omission must be made knowingly and intentionally, not as a result of mistake or accident, or in negligent disregard of its truth or falsity. Also, the plaintiff must prove that the defendant intended for the plaintiff to rely upon the misrepresentation and/or omission; that the plaintiff did in fact rely upon the misrepresentation and/or omission; and that the plaintiff suffered injury or damage as a result of the fraud. Damages may include punitive damages as a punishment or public example due to the malicious nature of the fraud.

Disclosure of hazardous or defective conditions on real estate is regulated by state law. The law usually requires that potential buyers be told all material facts about the condition of a property for sale. Defects listed on a disclosure form may also include appliances, electrical system, water and sewer system, roofing, structural and foundation problems, moisture, and others. Latent defects are problems with the property that the buyer or buyer’s agent is not able to discover through a normal inspection. It is a hidden or dormant defect in a premise that cannot be discovered by observation or a reasonably careful inspection. Some states interpret latent defects to mean structural items (including foundational problems) and safety items. The disclosure laws typically require material or important defects to be disclosed. Disclosure of environmental risks, particularly the ones that pose health hazards, may also be information that must be disclosed. A leaking underground oil tank or the presence of a nearby nuclear power plant for example must be disclosed to the buyer.

When one party to a contract knows of a fact that has a bearing on the transaction, the failure to disclose this information to the other party is called nondisclosure. Generally, the law does not attach any significance to nondisclosure. The theory is that it is preferable that the party lacking the knowledge ask questions of the party with the knowledge rather than imposing some sort of duty on the party with the knowledge to volunteer the information. Thus, generally, an agreement of the parties is not affected by the fact that one party did not disclose information to the other party. This is the general rule. Ordinarily there is no duty on a party to a contract to volunteer information to the other party. The nondisclosure of information that is not asked for by a party does not hurt the validity of the contract. For example, generally, a seller would be under no duty to disclose foundation problems to a buyer who purchases a home and later discovers severe foundation problems, if the buyer, prior to signing the contract, made an inspection of the house and assumed several visible cracks in the roof and walls were the result of the house settling, and the seller did not originally make a disclosure one way or another.

The relationship between a buyer and seller of real estate is created by contract, and the terms of the contract generally determine the rights of the buyer and seller. You should carefully review the terms of your real estate contract to determine your rights and obligations regarding defects in the property. The answer to your question will depend on proving the seller had knowledge of the moisture problem. This will be a matter of subjective determination for the court, based on all the facts and circumstances involved. If the seller failed to disclose any known material defects in the house, you may have recourse against him or her. To receive compensation for losses, a complaint may be filed in court. Please see the links to the forms below. Also important is whether you elected to have a home inspection performed and whether that inspection revealed any problems.

Contracts are agreements that are legally enforceable. A contract is an agreement between two parties that creates an obligation to do or refrain from doing a particular thing. The purpose of a contract is to establish the terms of the agreement by which the parties have fixed their rights and duties. An oral contract is an agreement made with spoken words and either no writing or only partially written. An oral contract may generally be enforced the same as a written agreement. However, it is much more difficult with an oral contract to prove its existence or the terms. Oral contracts also usually have a shorter time period within which a person seeking to enforce their contract right must sue. A written contract generally provides a longer time to sue than for breach of an oral contract. Contracts are mainly governed by state statutory and common (judge-made) law and private law. Private law generally refers to the terms of the agreement between the parties, as parties have freedom to override many state law requirements regarding formalities of contracts. Each state has developed its own common law of contracts, which consists of a body of jurisprudence developed over time by trial and appellate courts on a case-by-case basis.

An unjustifiable failure to perform all or some part of a contractual duty is a breach of contract. A legal action for breach of contract arises when at least one party's performance does not live up to the terms of the contract and causes the other party to suffer economic damage or other types of measurable injury. A lawsuit for breach of contract is a civil action and the remedies awarded are designed to place the injured party in the position they would be in if not for the breach. Remedies for contractual breaches are not designed to punish the breaching party. The five basic remedies for breach of contract include the following: money damages, restitution, rescission, reformation, and specific performance. A money damage award includes a sum of money that is given as compensation for financial losses caused by a breach of contract. Parties injured by a breach are entitled to the benefit of the bargain they entered, or the net gain that would have accrued but for the breach. The type of breach governs the extent of damages that may be recovered.

Restitution is a remedy designed to restore the injured party to the position occupied prior to the formation of the contract. Parties seeking restitution may not request to be compensated for lost profits or other earnings caused by a breach. Instead, restitution aims at returning to the plaintiff any money or property given to the defendant under the contract. Plaintiffs typically seek restitution when contracts they have entered are voided by courts due to a defendant's incompetence or incapacity.

Rescission is the name for the remedy that terminates the contractual duties of both parties, while reformation is the name for the remedy that allows courts to change the substance of a contract to correct inequities that were suffered. In order to have a rescission, both parties to the contract must be placed in the position they occupied before the contract was made. Courts have held that a party may rescind a contract for fraud, incapacity, duress, undue influence, material breach in performance of a promise, or mistake, among other grounds.

Specific performance is an equitable remedy that compels one party to perform, as nearly as practicable, his or her duties specified by the contract. Specific performance is available only when money damages are inadequate to compensate the plaintiff for the breach

Promissory estoppel is a term used in contract law that applies where, although there may not otherwise be an enforceable contract, because one party has relied on the promise of the other, it would be unfair not to enforce the agreement. Promissory estoppel arises from a promise which the promisor should reasonably expect to induce action or forebearance of a definite and substantial character on the part of the promisee and which does induce such action or forebearance in binding if injustice can be avoided only by enforcement of the promise. Detrimental reliance is a term commonly used to force another to perform their obligations under a contract, using the theory of promissory estoppel. Promissory estoppel may apply when a promise was made; reliance on the promise was reasonable or foreseeable; there was actual and reasonable reliance on the promise; the reliance was detrimental; and injustice can only be prevented by enforcing the promise. Detrimental reliance must be shown to involve reliance that is reasonable, which is a determination made on an individual case-by-case basis, taking all factors into consideration. Detrimental means that some type of harm is suffered.

Reasonable reliance is usually referred to as a theory of recovery in contract law. It was what a prudent person might believe and act upon based on something told by another. Sometimes a person acts in reliance on the promise of a profit or other benefit, only to learn that the statements or promises were either incorrect or were exaggerated. The one who acted to their detriment in reasonable reliance may recover damages for the costs of his/her actions or demand performance. Reasonable reliance connotes the use of the standard of an ordinary and average person.

Generally, a realtor isn't liable for house defects unless a warranty was provided or they knew of the defect. Cases from a few states hold that the broker is not liable for incorrect information provided by the seller if the broker has no basis to know or suspect the information is inaccurate. The prudent broker should ask the seller to provide written information and documentation if it exists. Information provided to the buyer may include the written qualification that the broker is not warranting the accuracy of such information. Often the real estate disclosure statement will insulate the broker from liability. However, not all property conditions or representations are covered by the standard disclosure statement.

Whether you can hold the home inspector responsible for missed defects depends upon whether the problems were visually discernible and within the scope of the inspection. The answer depends partly on the terms of the contract for the inspection and what was covered by such inspection. If not addressed in the contract, the court will judge whether such a defect should have been discovered based on the circumstances involved and inspection industry standards. Home inspectors routinely disclaim liability for property defects that are located below ground, under slab floors, beneath insulation, within walls, behind personal property, inside fixtures and appliances, or for any reason whatever, not fully exposed and readily accessible at the time of the inspection.

The following is an Ohio statute:

4735.67 Disclosures to purchaser.

(A) A licensee shall disclose to any purchaser all material facts of which the licensee has actual knowledge pertaining to the physical condition of the property that the purchaser would not discover by a reasonably diligent inspection, including material defects in the property, environmental contamination, and information that any statute or rule requires be disclosed. For purposes of this division, actual knowledge of such material facts shall be inferred to the licensee if the licensee acts with reckless disregard for the truth.

(B) A licensee is not required to discover latent defects in the property or to advise on matters outside of the scope of the knowledge required for real estate licensure, or to verify the accuracy or completeness of statements made by the seller, unless the licensee is aware of information that should reasonably cause the licensee to question the accuracy or completeness of such statements.

(C) Nothing in this section limits any obligation of a seller to disclose to a purchaser all material facts known by the seller pertaining to the physical condition of the property, nor does it limit the obligation of the prospective purchaser to inspect the physical condition of the property.

(D) Nothing in this section limits any obligation of a purchaser to disclose to a seller all material adverse facts known by the purchaser pertaining to the purchaser’s financial ability to perform the terms of the transaction.

(E) No cause of action shall arise on behalf of any person against a licensee for disclosing information in compliance with this section, unless the information is materially inaccurate and the disclosure by the licensee was made in bad faith or was made with reckless disregard for the truth.

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