Question: Three weeks ago, I signed a contract to buy a single family house. I had the house inspected and the inspector advised me to get a termite inspection. The termite company determined that although there were no active termites in the house, there was a lot of damage -- both in the attic and in the basement.
When I discussed these issues with the sellers, they told me that the damage was in the house when they bought it and they were not going to do anything about it now.
I don"t think this is fair, and I don"t want to have to spend a lot of money correcting this damage. What should I do?
Answer: How much will it cost to repair the damage? The first thing you should do is get two estimates from licensed contractors. Do not rely on the estimate provided by the termite company, because generally these companies are not in the business of making repairs.
Then, you should immediately read two documents: the seller disclosure statement and your sales contract.
Your sellers clearly knew about the termite damage when they entered into the sales contract. Was this disclosed to you? In some jurisdictions -- such as in Maryland -- a seller can either disclose conditions in the property or tell you that they are not going to disclose and you are on your own regarding the house. This latter position is called a "disclaimer," although different states still require certain things to be disclosed, such a latent defects.
If your sellers did not disclaim disclosure, then you have the absolute right to insist that they either correct the termite damage or give you a cash credit for the amount of the repairs when you go to settlement.
Your sales contract may also be of assistance to you. If you were using the Regional Sales Contract, which is commonly used in the Washington metropolitan area, look at paragraph 13, entitled "Termite Inspection." This paragraph specifically states that "any ... structural repairs identified in the inspection report will be at seller's expense."
Now you have to determine if the damage which your termite inspector found was "structural." That is why it is important to have a licensed contractor give you an estimate before you approach the seller. Furthermore, if the damage is extensive, and will cost a lot of money to repair, you may have to bring in a structural engineer to assist you in making this determination.
You have indicated that settlement is scheduled for the end of this month. Clearly, you do not have a lot of time to do all of your homework. So I suggest that you approach the seller with these alternative proposals:
- Give you a cash credit at settlement in an amount that you negotiate;
- Postpone the settlement for a reasonable period of time in order for both seller and buyer to get all of the information needed to make intelligent and informed decisions as to the scope of the damage, or
- Go to settlement and have the seller escrow a sum of money from the sales proceeds. The amount should be based on the estimates which you have already obtained. The settlement attorney will be instructed to pay the contractor when the work has been completed to your satisfaction and any balance remaining will be returned to the seller.
What if the seller remains obstinate and refuses to accept any of these proposals? You then have a business decision to make. If you go to closing without resolving the issues, in most cases you will not lose your right to challenge the seller afterwards. Look at paragraph 34 of the Regional Sales Contract, entitled "Entire Agreement." This is known in the law as a "non-merger" clause. It reads as follows: "the provisions of this contract will survive delivery of the deed and will not be merged therein."
The general rule of law used to be that if you accept the deed from the seller, you lose all of your rights against the seller, even if there is a clear breach of the contract on the part of the seller. But the courts have decided that this is basically unfair, and many states have abolished this concept. And the Regional Sales contract reinforces this by making it clear that contract obligations and promises will not be lost just because settlement takes place.
As a practical matter, however, after settlement, you have lost your leverage. Now you will have to file suit against your seller, which is time consuming, potentially expensive and always uncertain.
In fact, your sellers may have moved to the other side of the country, if not to some other part of the world. There is no cash register at the back of the courthouse. Collection is difficult, so before you go to settlement, make your best efforts to reach an amicable resolution.
