For this piece, we’re going to do a slightly different format. We spoke with Me. Michael Bergman, a local lawyer, all about latent defects when purchasing a home. Here’s a little Q&A.
Q: If I have a problem with my house and I have a legal warranty, I’m going to have some sort of recourse. Where do I go from there?
A: Before you even get to that point, when you’re purchasing, you need to take certain steps. You need to hire a highly competent expert to inspect the property, have them produce a written report on the property’s mechanical features, then sit down with your agent and ask questions about its history. Has there ever been a problem with this property? Has there ever been a leak? Has there ever been some sort of environmental contamination? You need to sit down with the seller and ask the same questions!
Now, why do you need to do this before you even buy? Because one day, when you have a problem – latent defects are the most common reason for real estate court cases – you’ll need to show that you were diligent. If you haven’t done these steps properly, the judge might not rule in your favour. So preventative measures are the first step. You have an obligation to do your due diligence.
Q: Let’s assume the buyer did take the necessary steps during the purchasing process. What’s the first thing they need to do when a problem arises?
A: You need to act on that problem right away! You can’t sit and wait a year, or even 6 months, since that will be held against you. As soon as there’s a problem, you send a demand letter to the seller, ideally by registered mail. If you prefer to hire a lawyer – which is an even better idea – have the lawyer send the letter right away.
If you do the repair before sending the letter, that will be held against you as well. You have to give the seller the opportunity to evaluate the problem and make an effort to fix it, if they’re willing to do that.
Q: Are there any other parties that might get involved once the letter is sent?
A: It’s important to determine when the damage happened. Was it present at the time of the sale? If it occurred after you bought it, you can’t hold the seller liable.
The idea of a latent defect is that it’s hidden from you during the property visit. The seller may have no knowledge of the defect, but if it was there during his ownership, they’re still responsible – even if they have done nothing wrong.
In fact, the previous owner before the owner that sold you the property could be responsible, so you could end up suing more than one person. Or, you may sue the seller and they may counter-sue the previous owner.
Q: Let’s say the seller has come to inspect the issue and decided they’re not going to repair it. What would the next steps be?
A: You need to hire an expert to evaluate the damage. What’s it going to cost? Is there excavation needed? Are invasive measures needed? If it was a flood, for example, you may want to contact your insurance company: some insurance only covers flood, but it won’t cover the cost to repair the property for a latent defect.
With your lawyer, a lawsuit will be drawn up and sent by bailiff to the seller. They will have to then engage their own lawyer.
Q: During this process, if the defect is something that makes the home unlivable, you might have to leave the home or want to repair it right away. What would you recommend in this case?
A: First step, move out if you have to. Those charges should be assessed against the seller. If you need to do urgent repairs, you have to at least give the seller 2-3 days to come look at the place and see if they’re willing to fix it.
If they’re not willing and you’ve now done the repairs, now you’re in a court battle. How long will that take, roughly? That’s the unfortunate part. A good court case is going to take 2-3 years to complete. If you’re lucky, the case will get settled, but it may not get settled right away.
Going to court is not a done deal: it’s not like television where everything is black and white. That’s not how the real system works. It’s a slow tedious process in which there are long periods of time when nothing is going on.
Q: So, if the buyers are going through this process and don’t have the funds required to do the repair, what options are available to them at that point?
They’re either going to have to wait until the result of the court case or raise money by way of a hypothec or mortgage. They can borrow money to fix it, or they’re going to grin and bear it.
Now, another scenario I’ve heard about recently is: somebody is dealing with latent defects, they’ve done the repairs, they’ve started the legal battle, it’s going back and forth. At this point, the house no longer meets their needs and they want to sell it so they can move on to their next home.
What is the implication of there currently being a legal battle happening during the time of the sale? It’s not a good situation for the buyer, who is now becoming the seller. How many people are going to want to buy a house for full price when there’s a legal battle over a latent defect?
You have to tell your purchaser that there’s a legal battle, then you need to tell them what the problem is. So basically, you’re looking at a fire sale rate, unless you’re really fortunate and somebody wants the property because its other attributes are so amazing, or they want to demolish it and rebuild it completely.
Q: That covers the buyer who’s dealing with a latent defect. What do you have to say about a seller who receives a demand letter after selling their home?
If you’re a seller and you receive a demand letter, now you have a predicament, because you may have known about the defect and sold it without advising your purchaser. In that case, your best bet is to negotiate some type of settlement through lawyers.
If you did not know there was a defect, you have to send an inspector right away to verify the problem. If it’s real, then you have another problem, because the law says you’re liable even if
you didn’t know about it.
The only benefit to you within the law is that you will not be held for consequential damages, but you will be held for the repairs.
Q: Do you have any other recommendations for people dealing with latent defects?
Two things! First, before you sell, hire your own inspector to look around. Second, if you get a demand letter, most of them find their way into the garbage. That’s not a good idea. Take it seriously – especially if it’s a lawyer’s letter. But even if it’s just a registered letter, act fast, spend the dollars to get the inspection done, sit down with a lawyer and do what you have to do.