Potential Lawsuit for alleged water in the basement

[johnzcamaro]

We live in Ohio and sold our house last December. We never had any water issues in the basement and therefore had nothing to report on the disclosure. Last spring, we were informed by the buyer he was experiencing water problems in the basement and was seeking a settlement offer from us based on a fraudulent dislosure. We subsequently told him to take it up with his inspector since we never had knowledge of any water problems or problems with the foundation and/or grading which could lead to water problems. Under Ohio law, we are only required to report on problems you have knowledge of. A few months later, we received another letter from the buyer stating his waterproofing expenses totaled $7,600 and threatened us again with a lawsuit if a mutually agreeable settlement was not reached. We subsequently asked for and obtained a copy of his inspection report and waterproof contractor report. The inspection report stated there was evidence only minor moisture in the basement with no other potential red flags. However, the report also stated the lot was improperly graded towards the house which could potentially lead to water problems if not corrected (please note there was very heavy rain last spring). The buyer relied on this inspection report without question and bought the house. With respect to the water proofers report, they had commented on technical problems with the foundation and gutters that we never would have had knowledge of. If the buyer files a complaint, is there any merit whatsoever based on the facts?

 

[HomeGuru]

Yes.

 

[johnzcamaro]

Follow-up

I don't understand how this buyer could prove have a legitimate claim as you state. I found the following Ohio law interpretation from an Ohio Real Estate attorney with respect to residential disclosures:

Although Ohio R.C. 5302.30 created a new duty requiring some sellers to disclose defects of which they have actual knowledge, the statute did not include any penalty for a seller's failure to disclose defects. The statute does not prescribe any penalty for misrepresenting, either intentionally or inadvertently, a condition that appears on the property disclosure form. For this reason, the law requires that the purchaser prove that the seller committed a fraudulent nondisclosure. Fraudulent nondisclosure requires the following elements: (a) a representation or, where there is a duty to disclose, concealment of a fact, (b) which is material to the transaction at hand, (c) made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred, (d) with the intent of misleading another into relying upon it, (e) justifiable reliance upon the representation or concealment, and (f) a resulting injury proximately caused by the reliance. Key: Even though a seller failed to disclose a known defect required to be disclosed on the Seller Disclosure Form , the purchaser may not be entitled to any damages if the defect was capable of being observed or discoverable upon a reasonable inspection.

The bottom line is we didn't disclose any defects because we didn't know of any. Don't you think the buyer would have a difficult time proving all the above factors? Are we not innocent until proven guilty? Finally, do you feel it would be in our best interest to settle or risk going to court if he files a complaint? Thanks!

 

[HomeGuru]

Thanks for providing the information and on one post.
In my opinion, you, your real estate agent and the Buyer's real estate agent (if there were any) are liable.
Why you may ask? Read on.

In recent years, courts have ruled that a duty of the Seller and the real estate agents to disclose include not only what these parties know, but also should have known. You stated that you never had any water issues in the basement...and knowledge of any water, foundation, grading problems...
While this may be true, this fact alone does not offer you complete protection and immunity.

And you state under Ohio law, you are only required to report on problems you have knowledge of. I do not know Ohio law but disagree with the interpretation by the attorney.

If we look at the conditions that were discovered, it would appear quite obvious that the conditions were not hidden. You as the Seller are considered a layperson. The inspector and the waterproofing contractor are considered experts and professionals. Thus the information provided by the experts would generally hold more weight than the information provided by you. In this case, the inspector and the waterproofer have superior knowledge and experience. The following conditions that you should have known but did not, were not disclosed. These conditons include minor moisture in the basement and improperly graded lot, as discovered and reported by the inspector. And technical problems with the foundation and gutters that were discovered and reported by the waterproofer. You state that these conditions you never would have knowledge of and that would be correct if you did not go to the next step. You would indeed have knowledge of these conditions if you had hired the inspector and the waterproofer yourself and then given their reports to the Buyer as part of your Seller property condition disclosure statement. You did not mitigate your liability because you had the liberty of completing these tasks but did not. Furthermore, you could have been better protected if you sold the property on an "as-is with all defects" basis. In other words, if you had the same information that the Buyer had with repect to those conditions, you provide the reports from the inspector and waterproofer as part of your disclosure. And reference the information in the contract by stated that the Buyer understands that the subject property is being sold on an as-is with all defects basis and the said defects are noted in the inspection and waterproofers reports. The Buyer hereby agrees and accepts those conditions and understands that the Seller will not make any repairs to correct those named conditions.

There is a landmark case out of California titled the Easton v. Strassburger (1984) 152 Cal. App. 3d. 90. Basically the ruling stated that the Seller and the real estate agents must disclose not only conditions that the Seller knows but also conditions the the Seller should have known. You can use those case name search words on any major search engine to get more information.

You indeed are innocent until proven guilty. I do not think that a Buyers attorney woud have a hard time proving a-e. In cases such as these, I always recommend settlement because once litigation starts, the attorneys fees alone would exceed the amount that the Buyer is asking for. Maybe offer to pay a percentage of the total remediation cost with a claim that the Buyer knew of the problems based on the inspection, accepted those problems and bought the property anyway instead of terminating the transaction.