What A Homeowner Should Do And Consider Before Starting A Repair/renovation That Might Be Related To A Claim Against The Prior Owner
What A Homeowner Should Do And Consider Before Starting A Repair/Renovation That Might Be Related to A Claim Against The Prior Owner
Escrow has closed, and you are about to start repairs or renovation to your new home. This work may have been (1) anticipated because of property conditions (e.g., the need to replace the roof or conduct pest-control repairs) that you knew about when you purchased the property, (2) a project (e.g., remodeling) that you contemplated doing after acquiring the property, or (3) necessary because you discovered a new issue (e.g., water intrusion, mold, etc.) you were unaware of at the time of purchase.
You hire a general contractor in California who visits the property and finds one or more of the following: elevated moisture levels in the walls, evidence of past repair attempts or renovations, evidence of prior water leakage or dry rot, or some other condition that neither you nor the contractor anticipated but there is the possibility that a prior problem existed that the former owner may have known about or possibly caused.
You review the disclosures, advisories, and reports that you received as part of your purchase in the light of this new information; you conclude that there are material defects or conditions that were not disclosed to you by the former owner. The general contractor suggests that additional destructive testing (such as the opening of walls or other areas) is necessary in order to determine the full nature and scope of the problem.
The following are some things to do and consider before taking that next step.
(1) If you have an active and ongoing problem (e.g., active water intrusion), then it is obviously necessary to stop that water intrusion and the spread of any further damage. Any work at this point in time should be limited to accomplishing this objective, but all work should be carefully documented by the contractor, including but not limited to photographing the condition that existed before commencing any work .
(2) If, however, the problem does not involve any active and/or ongoing issue or damage, then you should consider the following:
(a) Opening walls and other forms of destructive testing risks destroying evidence that may establish liability on the part of the seller, including but not limited to what repairs were made, when they were made and/or whether they were performed adequately. This activity can identify the manufacturer of a component part, the method of construction, or the type of material used. These findings can indicate when prior repairs or renovation took place, the skill set of the individual who did the work, and other factors that may assist in establishing a claim against the prior owner.
(b) Preservation/retention of the physical evidence may help support your claim against the prior owner and buttress your professional’s opinion. Preserving the physical evidence may also rebut any argument that there has been spoliation of that evidence. Spoliation may occur when the evidence supporting a claim is destroyed, discarded, or otherwise made unavailable to the opposing party.
(c) Retaining a qualified professional (engineer and/or contractor) to evaluate the source and cause of the problem may assist you in proving your claim against the prior owner. The professional you retain is the person you will likely rely on in the event there is a dispute. The knowledge, training, skill, and experience of your expert in handling these types of problems and your expert’s ability to express their opinions may impact the outcome of any dispute. A qualified professional has the experience to determine who is responsible for the adverse condition, who may have had knowledge of it and at what point in time, what prior repair attempts were made, and whether those repair attempts were successful, etc. There are qualified professionals experienced not only in evaluating conditions that are present but also in documenting and preserving those conditions (via photographs, videos, moisture readings, retaining all physical evidence, etc.). If you cannot retain a qualified professional at the outset, you should ask if the contractor you are working with understands the importance of photographing, documenting, and preserving the evidence and is fully capable of properly performing those tasks.
(d) Destructive testing or continuing with renovation may impact your ability to seek certain remedies. Most homeowners confronted with this type of situation think in terms of recovering money from the former owner. What they don’t always consider is that the issues they have confronted may provide a basis for a claim of rescission. Rescission is a contract remedy that results in the former owner taking back the property and reimbursing the purchaser for those costs and expenses that they have reasonably incurred up to the time the rescission is effectuated. Grounds for rescission include fraud, failure of consideration, and mistake (either mutual or unilateral). Whether rescission is potentially available depends on various factors, including the significance of the adverse condition. Even in situations where a claim of fraud is difficult to prove, demanding rescission based on mutual mistake may concern the prior owner enough that they become more serious about engaging in discussions to resolve the matter.
Several factors may impact a claim for rescission, including, for instance, the timeliness of the demand for rescission and whether the property can be returned in the same condition it was in when it was purchased. Costs and expenses incurred after knowledge of the grounds for rescission may not be recoverable. Completing repairs or a renovation of the property may have a significant impact on the ability to rescind.
(e) Whether you are going to pursue rescission or a claim for damages, or possibly both with the help of an attorney, a good practice is to notify any potential party of the issues and offer them the opportunity to evaluate the conditions with your retained professionals present before any destructive testing takes place. This allows all parties to observe the conditions in dispute, document those conditions, and, possibly, to agree as to how the evidence will be preserved. By simply involving all parties at the outset of the evaluation process, you may be able to forestall those parties from claiming that they were deprived of a chance to examine the problems as they were discovered, question your professional regarding the methodology used to test, document, and/or preserve the conditions, and otherwise be made aware of the issues/problems at the property and the efforts being taken to remedy them.
(3) Purchasers who find themselves in these situations will need to retain a qualified California real estate attorney to determine who has potential liability for the condition(s) and the best type of claim to pursue given the facts (including whether to seek monetary damages and/or rescission). Keep in mind that one of the consequences of rescission is that the buyer typically forfeits any market appreciation that has occurred since the date of purchase. On the other hand, if the market has declined, then rescission may be a more appealing remedy because the buyer receives a return of the consideration that they originally paid and perhaps now has greater purchasing power if it is a declining market.
Post-close-of-escrow real property claims should not be handled by the real estate professionals who were involved in the transaction; they lack the training and expertise necessary to evaluate either the legal issues involved or the best remedies for their clients. Such post-close-of-escrow claims involve many complex and strategic legal questions that are often beyond even the knowledge and expertise of attorneys who specialize in other areas of the law, such as family law or bankruptcy. Therefore, any purchaser thinking about pursuing a claim against the prior owner of their property (or anyone else) should consider making the first step in this process a consultation with a qualified California real estate attorney.