The Waterfall That’s In Your Basement: Home Seller Liability and Buyer Remedies for Basement Water Damage

The Waterfall That’s In Your Basement: Home Seller Liability and Buyer Remedies for Basement Water Damage

Jan 16, 2020 | Purchase Agreements, Real Estate Law

With the change in seasons, snow melt and the onset of spring rain, some home buyers who recently purchased their property during the winter months have come to discover, to their surprise, that their basement leaks or worse, floods. Nothing is more disappointing, frustrating and disruptive than having a basement leak or flood, especially when the buyer relies upon a seller’s statements concerning a home’s condition and a home inspection. They relied upon their seller’s representations that the seller had no knowledge of basement water problems. In almost all cases, had the buyers known of existing water problems, they would not have written an offer on their home.

With very few exceptions, Michigan real estate law requires that a home seller must, in good faith, provide a complete disclosure of their home’s condition to prospective purchasers before selling the property. Sellers are not liable for errors in the disclosure statement which are not within their personal knowledge. But when they know of a current water problem or had a former water issue, they had better disclose this fact to their buyer. Yet there still are sellers who think they can get away with misleading their buyers and it’s this misguided attitude that continues to contribute to my job security.

Seller Misrepresentation

In Michigan, a seller may be legally and financially culpable to a buyer for making statements contained in the disclosure form that they knew or should have known were inaccurate. Sellers are committing “misrepresentation”, when the seller had personal knowledge of the problem but failed to exercise “good faith”, by not disclosing that knowledge. In cases of water damage that allege a seller’s misrepresentation, Michigan courts look at whether a “reasonable factfinder” could determine if the seller knew about a leak yet allowed the transaction to move forward without disclosing the water problem to the buyer.

Seller Fraud

When a seller fails to disclose known water leaks and then tries to conceal the damage, they are committing fraud. It is deceitful, and if the seller is found culpable, they will be responsible for triple the damages. An example of knowingly concealing water damage is when a seller installs new paneling or drywall over a water-damaged area so as to prevent the buyer or their inspector from discovering the water problem.

Buyer Rescission Remedy

In both instances where a seller has been found to misrepresent or intentionally mislead the seller by hiding or concealing water damage, Michigan courts allow a buyer to rescind or cancel the entire purchase transaction. This can come months after the buyer has moved into their home. The purchaser of the home is permitted to transfer the property to the seller, and the seller must return the purchase price, plus interest.

Buyer Triple Damages Remedy

Buyers don’t have to actually rescind the transaction. They can sue for their money damages if they elect to remain in their home. Damages can include the cost to remove the material that concealed an offending leak, as well as the costs for repairs and restoration needed to stop the leak in the future. In cases of fraud, sellers are responsible for triple the damages. For example, a $10,000 problem can cost a deceitful home seller $30,000.

Conclusion

Real estate transactions are a serious business and the related home disclosure requirements should not be taken lightly. If a seller is uncertain as to whether they should disclose a known defect in the home that cannot be observed in plain sight, always remember that it’s best to disclose. A competent real estate professional can address the defect in the sales price. The alternative to hiding a known defect from a home buyer, will be far more costly later. When in doubt, or if you are having problems with the condition of your home after the home sale, consult with a real estate attorney.

 

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