Discovery of Hidden Defects in Your Newly Purchased Home
November 9, 2021 | Joan M. Quade
The last few years have seen unbelievable residential home sales. There have been a large number of buyer/bidders for every home that hit the market. Homes were selling for tens of thousands over asking and bidders waived contingencies and inspections just to “win” the right to buy. Many buyers bid on multiple houses before they actually were the high bidder and each frustrating loss made them more eager to add to the bid price and to waive inspections. Some were so desperate they bought houses sight unseen willing to take some risk to get a house!
For many it all worked out and whatever minor issues they discovered after closing, they were willing to correct on their own or just live with it. For some the hidden home defects, issues and costs have been overwhelming. Their initial excitement to be in their new home has turned into a financial disaster. Some have discovered foundation cracks, water intrusion, poor homeowner work on the property without the proper permits or inspections, insurance money pocketed by the prior owners for hail or flood damage claims that were never fixed, major issues with the mechanical parts of the home like the furnace, water heater, electrical issues or the air conditioning and the list goes on and on. They second guess themselves for not getting an inspection, but they know if they had asked for an inspection contingency they would not have been the winning bidder. So they soldier on and get bids to correct the issues and try to find the funds from retirement or the kids college fund, to correct major issues with the house, thinking they have no other options. Well they might be wrong.
In Minnesota, sellers of residential Real Property are required to disclose all material facts of which they are aware, that could adversely or significantly affect an ordinary buyer’s use and enjoyment of the property or the buyer’s intended use of which the seller is aware. The disclosure must be made by the seller in Good Faith based upon the best of the seller’s knowledge at the time of disclosure. The law is Minnesota Statute 513.55 and was put into place to protect buyers from purchasing a property with hidden defects that are known to the seller. It also prevents sellers from dumping their problems onto an unsuspecting buyer.
Sellers are required to do this disclosure whether or not the buyer gets or requests an inspection. In fact, inspectors for buyers ask to see the disclosures, because there may be clues to hidden defects. The Minnesota Realtors’ Association uses a 10-page form for sellers to complete, that is then given to prospective buyers. The questions are very detailed and cover just about everything that could go wrong in a home, from top to bottom and have an “additional comments” section for anything else that the property owner knows about. The law is clear that such disclosures are required. Simply put, it means if a seller knows about a problem or issue, they need to disclose it on the form. (NOTE: There are some exceptions to the disclosure laws found in Minnesota Statute 513.56 but the exceptions are limited.)
Most good realtors tell sellers that to protect themselves from liability, they should disclose anything they know. They need to disclose everything, including but not limited to every water leak or intrusion even if fixed, damages from storms, leaky basements, issues with the major mechanicals like furnace and air-conditioner, appliance problems and any additions, remodeling or electrical work, and to disclose whether the work was done by licensed contractors, and if permits were pulled and if inspections were done.
Minnesota Statute 513.57 Subd. 2 provides that a seller who fails to make the disclosure will be liable to the buyer. The buyer may bring a legal action and request damages or equitable relief such as rescission of the sale. However, such an action must be brought within two years after the closing on the property. Also, for the seller to be liable the seller had to know about the issue. Sellers are not liable for something they did not know about or for something that is a hidden defect. Sellers are not required to dig into walls and see what is going on or to have their own property inspected by experts before a sale. They themselves are also not required to be experts in any field related to their home. For example, if they did not know that the roof was leaking into the attic because no water was present in the living spaces, they may not be liable. If they did not know that the foundation was cracked in the basement, behind the dry wall, they will not be liable. To be liable, the buyer must prove that the seller knew about the issues and kept quiet about it.
Sellers are also not liable, most often, for things that are open and obvious. Realtors tell sellers to disclose even things that are open and obvious, but there is no liability if the issue can be seen by a buyer. For example, if there are large obvious cracks in the foundation, that can be seen inside or out, a buyer probably cannot successfully sue for cracks in the foundation that were not disclosed by the seller. However, I say “probably” cannot sue successfully, because these cases depend upon what the facts show. For example, if in fact that seller did not disclose the cracks, but it is discovered that they had an engineering report about the cracked foundation and maybe bids to correct it and knew it was a structural problem that needed correcting and it was a costly fix, the chances of a successful lawsuit against the seller is very likely under such circumstances.
If you have fallen victim, in this crazy housing market, to costly home issues and want to discuss the potential for a failure-to-disclose situation, give us a call. Don’t correct all of the problems and then hope later to collect from the seller. You need good legal advice up front to decide how to proceed. There are many other laws and rules of evidence to consider before proceeding or you could be jeopardizing your case. For example, you cannot just correct all defects without giving the seller notice, and without giving them and their experts an opportunity to see the defects before you fix them.
There are many nuances to these disclosure laws and in successfully litigating or arbitrating them that cannot all be covered by this article. Obtain good legal advice before deciding whether you do or you don’t have a good legal case for failure to disclose. I would be happy to talk it through with you.
Joan Quade is a Shareholder of Barna, Guzy & Steffen
200 Coon Rapids Blvd, Suite 400
Coon Rapids, MN 55433
763-780-8500
This article is intended to provide general information only and should not be used as a substitute for legal counsel or advice.