October 14, 2015
Home buyers want assurances that someone will correct defects in construction to make it conform to what they bargained for. In the sale of new homes, these assurances usually come in the form of the builder’s warranties. Homeowners must make serious decisions about whether to go under contract, go through with closing and allow a year or so to go by without making a warranty claim. The purpose of this blog post is to identify some of the top misconceptions buyers have about home builder warranties that interfere with good decision-making.
- “My Warranty Coverage is Only Shown in the Packet of Contract Documents.” In fact, warranties can also arise out of legislation or court decision precedents. Warranty law is a solution to the problem that a buyer can inspect something, pay for it and later discover that the construction was materially defective. In Virginia, the courts traditionally ruled that in every contract with a builder there is an implied warranty of good workmanship unless the terms of the contract provided specific disclaimers or modifications. This rule helped consumers by requiring that the contractor would have to stand behind their work unless there was some fine print otherwise. Builders responded by having their attorneys write-up those warranty documents that can range from a paragraph to over 50 pages. The Virginia General Assembly observed that contractors were finding ways to get buyers through real estate closings on properties that did not conform to contracts in spite of the efforts of local building code enforcement officials and the buyer’s inspections. They passed legislation that creates implied warranties of quality workmanship that arise in the sale of each new home construction. Unfortunately, both contractors and homeowners are often unaware of these statutory warranties and their relationship with the written contract documents including the written limited warranties. Homeowners find it much easier to negotiate with their builder if they know the full extent of their warranty rights from review of the agreements and statutes.
- “My Neighbor Couldn’t Make Use out of Her Warranty, So I’m Also Out of Luck.” Tragically, many homeowners allow their warranty rights to expire without preserving their right to exercise them. Builders, neighbors, building code officials and inspectors can give useless or misleading legal advice. Because the contract documents vary builder-to-builder and the implied warranty laws vary by state, it is impossible to give a general summary that can be applied in every case. Understanding warranty coverage requires compiling the contract and warranty paperwork and state statutes. Usually, the basic warranty lasts for only one year.
- “My Builder is the Best Person to Ask about what they are Required to Fix.” Builders know that the courts will not expect them to continue making warranty repairs to one house for as long as they continue to be in business. To the extent a builder is still working on a house they have already sold, they aren’t making any new money. Contractors sometimes use written warranty paperwork to confuse or limit the buyer’s warranty rights at the time of sale. The builder’s warranty too often is used as a sales tactic to assuage nervous buyers concerned about construction defects. If the homeowner complains to the builder about construction defects after move-in, some contractors try to keep them occupied with inspections and ineffectual repairs. If the builder’s employees are frequently at the house, the owner probably won’t invite independent inspectors, experts or other contractors who might diagnose serious warranty claims and help the owner protect their rights. Once the owner starts to lose confidence in the builder or the warranty period is approaching, the owner needs the help of independent experts.
- “The Only Construction Defects Worth Focusing on are the Ones I Look at Everyday.” Homeowners frequently focus on the types of construction defects that they notice everyday. Defects in drywall, painting, grout, trim and other finish work can add up to thousands of dollars in repair costs, but they may not be the most substantial defects made by the builder. Water may be leaking into the house. Major systems such as roofing, plumbing, electrical, HVAC, etc. may require extensive repairs or replacement if not properly addressed during a warranty period. In order to properly diagnose these problems, the owner must coordinate investigation with inspectors, experts or other contractors who are independent from their builder. Every homeowner owes it to themselves to know the truth about the condition of their house.
- My Realtor, Mortgage Broker, Settlement Agent or Builder Recommended This Home Inspector, so they must be fine.” In hiring a third party inspector to help with a home purchase, the independence of the home inspector is just as important as their competence. Most professionals in a real estate transaction are only paid when the deal goes to closing. If a home inspector or other participant does find a defect that would cause a deal to not go through or be substantially delayed, the other professionals won’t want them to be involved in the next sale. Most home inspectors know enough about houses to provide a report that is a great help to the buyer. What’s important to the buyer is having an inspector who isn’t allied with the people being paid out of settlement. That way, the buyer knows he is working for her.
A homeowner should not rely solely on the contractor to clarify what their warranty rights are. It’s better to find out from qualified inspectors, engineers or other contractors what, if anything is wrong with your house. A qualified attorney can help determine whether those defects are legally covered before time runs out. If the closing on the new home was less than 12 months ago, there is a strong chance the owner may be entitled to repairs or financial compensation from the builder for failure to make the house conform to the warranty.
Mann v. Clowser, 190 Va. 887, 59 S.E.2d 78 (1950)
June 9, 2015
This past month, I experienced wonderful changes in my life which drew me temporarily away from my passion for blogging about property rights. On May 1st, I started my own solo law practice, Cowherd PLC. The new law firm continues my professional focus on the types of legal matters discussed in “Words of Conveyance.” On May 27th, my lovely wife and I welcomed our beautiful newborn daughter into the world. I would like to thank my friends and family for their love and support, including those who follow this blog. As a parent, I want the best home environment for my child to grow up in. As a trial attorney, I want to advocate for rights that are precious to clients.
When smart prospective buyers search the market for a home, they need to investigate the property. Typically, buyers use home inspectors to help them. Unfortunately, some defects cannot be easily discovered during the home inspection. For example, a structural defect may be concealed by drywall or other obstructions. With other houses, flooding problems may only be apparent after heavy rains.
Often, buyers will ask the seller’s agent whether there is a history of flooding or other problems. Agents know that if potential buyers learn negative information about the property they may move on to another listing. After a buyer completes a sale, the property may turn out to have defects that were concealed or contrary to representations made in the sales process. Who is legally responsible in those situations? Can a buyer sue a sellers real estate agent? Virginia courts considering this question draw varying conclusions.
“Great Party Room:”
The Circuit Court of the City of Norfolk recently considered whether a buyer can sue a sellers real estate agent under the Virginia Real Estate Broker’s Act. Megan Winesett is an active duty servicemember who bought her first home in 2010. The property listing described the basement as a “great party room.” During the walk-through, Ms. Winesett asked her own agent about basement flooding. The buyer’s agent told her that the seller’s agent explained that flooding was not a problem. A few years later, Winesett renovated the property and discovered rotting and termite damage in vertical support beams in the basement under her kitchen. She also found cracks in her foundation.
Buyer’s Relationship with the Seller’s Agent:
Winesett sued the seller, seller’s agent, her own agent and the real estate brokerages for $75,000 for repairs plus $350,000 in punitive damages. She sued the seller for fraud and the realtors for violation of the Real Estate Broker’s Act (“REBA”). The seller’s agents sought to dismiss the lawsuit on the grounds that the statute does not create a private cause of action against the agents. They argued that the REBA only allows for professional discipline by the Real Estate Board and not lawsuits by individuals. In a 1989 decision, Allen v. Lindstrom, the Supreme Court of Virginia observed that:
The [seller’s agents]’ primary and paramount duty, as broker and broker’s agent, was to the sellers, with whom they had an exclusive contract. While there may be some type of general duty to the public owed by every realtor, it is not the type of duty that converts into a liability against a seller’s agent for improper conduct to one in the adversary position of prospective purchaser, where there is no foreseeable reliance by the prospect on the agent’s actions.
In that case, the Court rejected the buyer’s attempt to sue the listing agent for violation of a duty arising out real estate agent regulations.
Ms. Winesett brought her case against the agents on the Virginia Real Estate Broker’s Act, which also governs the practices of real estate agents. That statute creates duties for agents (licensees) to their own clients and also the opposite parties in the transaction:
Licensees shall treat all prospective buyers honestly and shall not knowingly give them false information. A licensee engaged by a seller shall disclose to prospective buyers all material adverse facts pertaining to the physical condition of the property which are actually known by the licensee. Va. Code Sect. 54.1-2131(B).
The Act requires such disclosures to be in writing. The realtor doesn’t need to be an expert in every issue. An agent is entitled to pass on information provided by the seller, the government, or a licensed professional. However, the agent may not rely upon information provided by others if he has actual knowledge of falsity or act in reckless disregard for the truth. Va. Code Sect. 54.1-2142.1.
On May 21, 2015, Judge Mary Jane Hall denied the seller’s agent’s motion, finding that the REBA does create a private cause of action for buyers against seller’s agents for violations. Judge Hall focused her analysis on language in the statute providing that, “This includes any regulatory action brought under this chapter and any civil action filed.” This case is currently set for trial in August. While the Court allowed this claim to move forward, Ms. Winesett bears the burden of proving it at trial.
Judge Hall’s legal conclusion is not consistently reached by all courts in Virginia. Unlike other consumer protection statutes, the REBA does not contain specific provisions about how a civil action may be brought and what remedies are allowed.
In 2004, the Circuit Court of Loudoun County entertained the same issue and concluded that a buyer is not entitled to a private cause of action against a seller’s agent for violation of the REBA. In Monica v. Hottel, Judge Thomas Horne decided instead that a buyer may allege a negligence per se claim against the seller’s agent for violation of the duty of ordinary care set forth in REBA.
I have a few observations about what these recent decisions mean to current and prospective real estate owners in Virginia:
- Discipline vs. Liability: In these cases, the sellers argued that the General Assembly contemplated that the statute would only be enforced by professional discipline, not private lawsuits. To a professional, the prospect of having one’s license suspended or revoked is a different type of threat than a jury award of a large money judgment. To the buyer saddled with a house requiring more repairs than they can afford, money is much more of a consolation than the knowledge that an agent is no longer selling real estate.
- Virginia Consumer Protection Act: Unlike auto dealers, construction contractors and many other types of businesses, licensed real estate agents are excepted from liability under the Consumer Protection Act. To the extent seller’s agents have responsibilities to buyers, liability would have to arise out of some other legal theory, such as the REBA, negligence or fraud.
- Challenges and Advantages of Suing for Fraud: Trial attorneys know that it is much easier to prove negligence or breach of contract than claims based on misrepresentation. In fraud, the standard tends to be higher and there are many recognized defenses. For example, expressions of opinion may not normally serve as the basis for a fraud suit. It is unclear what the standard of proof is for a civil action under the REBA and whether the usual defenses permitted in fraud cases apply. Buyers aren’t normally privy to the private conversations of the seller and his agent. Proof of “actual knowledge” may be hard to come by in many cases. However, there are advantages for suing for fraud. The plaintiff may be entitled to attorney’s fees and punitive damages. Fraud is a flexible legal theory which may provide a remedy in situations that statutes don’t cover.
- REBA Standard for Agents: Normally, a buyer must follow the traditional principle of Caveat Emptor (“Buyer Beware”). The REBA imposes a higher standard of professionalism on seller’s agents by requiring them to affirmatively disclose material adverse facts under many situations. Broad legal enforcement of REBA may change the way that real estate is sold in Virginia.
Although they construe the REBA in different ways, these recent court decisions demonstrate a trend towards greater consumer protection against predatory conduct in the real estate industry. In my experience litigating cases under common law fraud, consumer protection statutes, breach of contract and warranty law, I have learned that there is usually a legal theory that provides a consumer with a remedy. However, claims have a defined time period in which they may be brought. If you fell victim to dishonest conduct in your real estate purchase, discovered that a defect was concealed during your property inspection or your requests for relief under a warranty are being stonewalled, contact a qualified real estate litigation attorney before the passage of time may prejudice your rights. As an owner, you make a tremendous commitment and personal sacrifice to acquire and keep real estate. You are entitled to the legal protections owed by others.
P. Fletcher, “Homeowner Can Sue Agents Under Brokers’ Act,” Va. Lawyers Weekly, (Jun. 5, 2015)
December 19, 2013
From the moment the first person piled up rocks or rough-hewn timber to distinguish his farmland from the neighbors’, real estate has been visually-oriented. In the business of real estate, the walk-through of the premises provides you with an eyes-wide-open basis for due diligence and negotiation in sales, leases and dispute resolution. In the age of internet videos, Smartphone photography, Google maps, engineer drawings and online public land records, it is possible to learn much about a property without actually visiting it. However, real estate professionals still swear to the value of a real walk-through when your property is going through a transition. A photograph or video recording of a property may identify a desirable asset or potential problem without the time consuming task of driving to a location and talking a look. However, any kind of recording, photograph, drawing or description is at best a useful abstract of the property at a specific moment in time. If an entrepreneur desires to lease or purchase a property for purposes of operation of a unique business activity there, it is unlikely that a set of records could illustrate whether the property can fit her creative purpose. It is difficult to communicate with another party regarding a unique property concern without looking first.
Many buyers, tenants and lenders are drawn towards relying upon the representations of other people when entering into contracts. Business relationships do need trust in order to bear fruit. However, if someone insists that you make a decision without significant investigation, slow things down. The general rule in Virginia is caveat emptor –let the buyer beware. The law expects folks to be reasonably wary when it comes to entering into contracts. Further, once a party begins to conduct an investigation of matters underlying a contractual decision, the burden is on him or her to complete that investigation to the extent warranted by the situation. Of course, if the other party knowingly conceals a problem with real estate, the purchaser may have a basis to void the contract. After the fact, the burden of proving any kind of deceit would fall on the party suffering the harm. Generally speaking, the law expects parties entering into real estate contracts to do so reasonably self-informed about the subject property and the terms of the contract itself.
Part II of this post will explore the inspection process in more detail.