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“Greed Often Makes One Poor”

By: Ronald R. Rossi

The old maxim “greed often makes one poor” could not be truer than the case my associate, Laurel Champion, and I recently tried. The buyers, who were sophisticated, purchased the property from our clients, the sellers, in the Fall of 2012. Our clients lived in the 1920s built home for the preceding four years.

In 2009, our clients experienced basement water intrusion, the apparent result of a broken sewer pipe. Their homeowners insurance company paid for the damages. The affected area was repaired and a waterproof membrane was installed in the interior of the concrete foundation wall. Unbeknownst to our clients, while remedial action was taken, not all of the waterproofing recommended by the contractor hired by the insurance company was completed.

In 2010, our clients experienced another incident of water intrusion in the basement. They immediately called the contractor who completed the prior repairs, discovering that the insurance company had not directed the contractor to complete the full recommended scope of repair. After the insurer acknowledged the failure to complete the waterproofing in full as recommended by the contractor, the contractor finished the full scope of repairs.

Disclosures were made to the buyers by and through the real estate agents. The broker was a dual agent representing both the buyers and sellers. While the disclosures were not as detailed and clear as they could have been, and perhaps should have been, the buyers were specifically advised of the history of water intrusion and subsequent repairs and were advised to conduct further investigations. The Buyers, however, had their “heads in the sand” – or perhaps their agent did – but, in either event, the Buyers made no further investigation of the ninety-plus year old home, including of the basement with the disclosed history of water intrusion and which was, at the time of purchase and sale, used as an additional bedroom and office.

After the buyers moved in, the area experienced torrential rains. The basement flooded. The buyers panicked, immediately filing a lawsuit against the brokers and our clients. Realizing the disclosures were not as detailed as they should have been, and recognizing they were in a dual agent role in which they should have better advised both parties as to the disclosures and the effects thereof, the brokers paid the buyers $150,000, which amounted to the cost of renovating the foundation wall and adding a French drain around one portion of the home to prevent further water intrusion. The buyers’ own expert estimated the full cost of repairs to be under $130,000; thus, the broker made the buyers’ whole.

Our clients, based on their attempt to make full and complete disclosures, and their agent’s acknowledgement that she did not advise them properly as to the required clarity in their disclosures, refused to add anything to the settlement amount, especially given that the buyers were made whole in their settlement with the agents and broker. Avariciously and not satisfied with being made whole, after settling with the broker, the buyers insisted on pursuing the lawsuit against the sellers. In other words, they wanted more money (despite the fact that the broker settlement fully covered their damages). By the time of trial, the buyers wanted an additional $250,000, including attorneys’ fees and costs to essentially renovate the entire home.

The case proceeded to trial. After a full day of cross-examination, it was obvious the buyers were rapacious, they had been paid their full damages, and they were trying to obtain more than they were entitled to.

This is one of the few cases where I received a call from opposing counsel after the first day of trial to inform me the buyers intended to drop their case; however, here’s the twist with regard to greedy folks: I advised the buyers’ attorney that if they dropped their case after the actual commencement of the trial, they would be liable for our clients’ attorneys’ fees, because our clients would be considered the prevailing party, and we would not consent to dropping the case unless the buyers paid our clients’ attorneys’ fees. We were told to go packing.

The following day at trial, after a robust cross-examination, the buyers’ expert, again, essentially admitted the buyers had been paid their full damages, even if the proper disclosures were not made.

Once again, at the end of the second day of trial, opposing counsel notified me that the buyers intended to drop the case and asked if my clients were willing to negotiate our attorneys’ fees, which we did throughout the evening. Ultimately, the buyers agreed to pay $150,000 towards our attorneys’ fees.

When the case began, the buyers received $150,000 from the broker to repair the foundation and install French drains, allowing them to more than break even, assuming the repairs were performed. Now, the buyers – because they thought they were entitled to what they didn’t deserve – had to pay our clients another $150,000 in attorneys’ fees, as well as their own attorney an assumed like amount, and refurbish the basement interior. So, instead of walking away with $150,000 to repair the alleged damage, they finished underwater by at least $350,000.

After numerous trials and arbitrations in the last 45 years, my experience is that greedy people are transparent to the eyes of judges and juries. Despite the emotionally driven testimony of how this downstairs flood “ruined their lives,” caused the horrible misfortune of the necessity of their children to share an upstairs bedroom, and a myriad of other allegedly travesties as a result of the water damage, the judge saw through the dramatic performance. After only two days of trial, it was apparent to all present, including the buyers and their attorney, that the judge was favorable to the sellers.

If the agents had done a better job with the disclosure documents, fully advising both parties to the transaction as they are charged to do, perhaps the lawsuit would not have been filed. However, there were enough inconsistencies to encourage the buyers to continue with their lawsuit, making it abundantly clear that sellers and their agents need ensure that all disclosures (including those made by the sellers and agents, and those made in the various forms delivered to the buyers) are consistent. It is equally obvious that agents should counsel buyers when buying a property almost 100 years old that one of the most frequent problems is water intrusion. A rudimentary online search of the phrase “problems with older homes” netted 57,000 hits, the most frequent being water intrusion. Clearly, the buyers, who were sophisticated, should have had more horse sense, but so should have the agents of this phenomena.