Bought a home with problems?

Posted by on October 28, 2009 in Mom2KG Columns, Real Estate

Decide to buy a home. Hire a real estate agent. Look for houses. Look again. Make an offer on a home. Make another offer. Enter into an agreement of purchase and sale…. and, now, there is a problem before closing. What do you do? Can your real estate agent help you? Your real estate lawyer? Fight or flight?

Today’s post is a 2 parter between myself and my regular columnist, Mom2KG. We re-live a real life issues arising from  purchasing real estate with some problems and share lessons learned. As always, in these types of situations, it is important to obtain advice. My comments are in italics. Mom2KG’s in bold. Enjoy.

TMW: Mom2KG, I believe it was a Wednesday morning when I got an email from you indicating that there was a problem with buying your home followed by a bunch of four letter words. What exactly was the problem?

Mom2kG: Yup, and now that the problem has been solved, we continue to tell the story using lots of 4-letter words. It was an extremely stressful situation.

We had agreed with the seller that we could visit the home twice before closing. Typically, this is so you can measure for curtains or think about paint colours, or just gaze lovingly at your new ensuite bathroom. On our first visit, my husband realized there was an oil tank buried in the back yard. This was bad – an untold environmental liability. We had purchased the home with no conditions – so no home inspection – so we had no idea if we could get out of this or what our options were.

TMW:  Just so that the readers don’t think you are not a smart consumer, buying a house without conditions occurs in Toronto quite often, in order to head off bidding wars. So what you did was not out of the ordinary course.

By way of background to the readers, in Ontario, under the environmental legislative regime, oil tanks buried in grounds were required to have been removed. In other words, having a buried oil tank is now illegal in Ontario. At this point, you really have two obvious options: buy or don’t buy. What did you end up doing?

Mom2KG: We ended up buying. As readers may know, we’re both lawyers. So we called some contacts, and if things weren’t already off the rails, this compounded matters. Astoundingly, each lawyer gave us a different answer, ranging from “GET OUT NOW” to a more reasoned approach. It was really scary in the first few days. And confusing. Besides the illegality issues, we didn’t know if the tank had leaked and caused contamination under the house or even offsite.

However, there were very good reasons to pursue a remedy instead of running. First, we wanted the house – it was great. Location was great. Nothing else had come on the market in weeks. We had already sold our own home. As well, we knew, as lawyers, we had to give the sellers a chance to step up. You have to give them a chance to be reasonable. Finally, we had a leg to stand on – the oil tank existed illegally and no court (if it got to that) would force us to accept a property  not complying with law. But court was also the last place we wanted to end up.

TMW: What is important to note in your response is that as badly as you may have wanted out, I am assuming here, the lawyer in you probably said “have to play this out and put ourselves in a position where a reasonable person would say you did everything you could” before you backed out. Process is key. In most cases, you can’t pull the plug without going through the process.

Mom2KG: Yes, that was a major driver in the decision. You can’t just back of a contract and not incur some wrath, which can lead to serious fights and even litigation. We mapped out a lot of “what-ifs” and one was that if we ever got to court, we needed to be able to say we acted reasonably, even if it was the sellers who were ultimately in the wrong by not removing the oil tank years ago and then by not informing us of its existence.

TMW:  There’s a couple of educational items for readers to note. As you imply, that you cannot contract for an illegal act and, even if you breached the contract, you breached it for an illegality, which makes your argument substantively stronger.

But most home purchasers do not buy homes with illegalities in them. In most cases, problem closings come down to less dramatic issues like the purchaser bought without conditions or the conditions are waived and the purchaser gets laid off and cannot obtain a mortgage and closing.

In these instances, there is a doctrine known as “anticipatory breach.” In plain English, this means a promising party knows that they can’t fulfill their part of the bargain before the time promised and tells the other side before the closing dead/date the bargain is closed.

It may be strange to a non-lawyer that one would tell the other side you are in breach but the reason why you do this is because the other side has a duty to mitigate damages. In the real estate context, this means the vendor has to resell the house. If the house is resold for more than the purchaser bought it for and their other costs are covered (legal fees), the purchaser is basically off the hook for damages. If the house is sold for less than what the purchaser agreed to, the purchaser’s damages is the sum between (purchasers offering price + costs) – (new purchaser price). What the vendor cannot do is nothing and push the entire burden of damages onto the purchaser.

Mom2KG: These are all good points for your readers to know, and we actually discussed playing the anticipatory breach card as a way out of the deal. But, in our situation, there were other pressure points on how it all played out. We certainly tried to figure out who was in the wrong and why, and that included whether either agent had been negligent. As I’ll discuss in more detail later, though, we never played those cards and got what we wanted mostly through negotiation.

TMW: How helpful was the real estate agent in the beginning of this process?

Mom2KG: Our agent alerted the vendor’s agent to the tank. They realized right away, thankfully, that it was their responsibility. They knew they had to take it out for us, and could not hide it from the next potential purchaser if we backed out. (At that point, it’s what’s called a patent defect – an obvious, known problem with the property. When they sold it to us, however, the vendors, we believe, did not know about it, and that’s called a latent defect.).  Our agent was great – she did online research, talked us off the emotional ledge we were on, and made the hard call to the other agent. She knew it was important to communicate that while we really wanted the property, we weren’t taking it without the tank removed and proof of a clean property. I have to say, she leapt into action on our behalf and tried to find solutions.

TMW:  Timing was very important. Your agent got to their agent very quickly, identified the issue specifically rather than a blanket statement like “my client hates the home” and gave the vendor a reasonable amount of time to fix the issue. In other words, you gave a road map to a solution. Too often, real estate problems are ignored or raised at the last minute which allows the other side to raise the argument you were unreasonable or the issue is raised without a proposed solution being given; this comes off very badly as a negotiation tool. All you are saying is “here, do all my work for me” which provokes a really bad reaction. Be reasonable no matter what since you are framing your problem solving exercise in the context of either litigation or a title insurance claim.

to be continued…

5 Comments on Bought a home with problems?

By Tax Guy on October 28, 2009 at 9:17 am

We purchased a home back in 2005 on condition of a home inspection. The inspector pointed out a few items that needed “attention” but left us with the impression noting major was wrong.

This summer we discovered a leak in the basement and after we removed the interior wall found that a prior owner had installed a wood burning fireplace and that ten chimney was part of that installation. At some point after the installation the same or another owner decided to get rid of the fire place. Bricks were stuffed in the hole and the wall was covered up.

The poor installation meant water had been seeping into our basement and over the last few years had managed to open rather large cracks. When the rain storms came in August, we had water gushing into the basement.

Our insurance covered the damage inside, but I had to foot the bill for the foundation repair, removal of the chimney and a new roof (totalling $20,000).

We are the third owners of this home and I’m fairly certain the prior owners did have anything to do with the damages to my home. What are your thoughts on recourse? Is there any against a prior owner? What about the home inspector?

By Mom2KG on October 28, 2009 at 11:37 am

You should asolutely speak with a lawyer or two (you shouldn’t have a problem getting a free first consult). However, I’m not sure you’ll have recourse against the inspector. They only look for obvious problems. I do not think home inspectors are regulated, so pretty much anyone with a ladder and a flashlight can call themselves home inspectors. However, there probably is case law setting some sort of standard of inspection, and the question is whether your guy met it. If the damage could only have been discovered by breaking into a wall, then it probably wasn’t an obvious or patent defect.

There is also the question of whether the homeowner knew the work was bad. This is pretty tricky, but you won’t know what you can do or get until you speak to a lawyer in more detail.

Sorry to hear this happened to you. At least you have a new dry basement and good roof now.

By Thicken My Wallet » Blog Archive » Bought a home with problems? Part 2 on October 29, 2009 at 5:02 am

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By Tax Guy on October 29, 2009 at 9:31 am

Thanks! I have a fairly good relationship with the lawyer who helped us close all of our house purchases. I always forget to call him … but will now.

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