AboutTimmy Chou Expertise I am a experienced Mediator and a partner in a management consulting firm. As a mediator I work as a third-party neutral and specialize in partnership/shareholder disputes, management/labor issues, company culture difficulties, and family-owned business problems. I can help describe why alternative dispute resolution may be a good choice for you. As an experienced management consultant I may be able to offer creative ideas to help resolve your organizational and business problems and disputes. "If you say conflict, I say opportunity".
Question QUESTION: I live in Minnesota and recently purchased a house that was marketed as a complete remodel by a reputable Contractor (the plans were in the home). The Seller's Disclosure states all new plumbing and electrical. I had a non-invasive inspection and the following was noted; missing floor drain plug, the concrete driveway sloped towards the garage allowing water to enter the garage, the dryer venting is plastic flexible ducting (should be metal per code), there was noticeable encrustation around plumbing fixtures in the mechanical room(previous seepage)and a temporary wooden step leading from the kitchen to the garage. A copy of the inspection was given to the Seller and an addendum was written that the Seller agreed to pay $500 to the Buyer for replacing the plug to the floor drain, replacing the dryer venting with metal, replacing leaking connections to a faucet and capping an unused water line.
After closing, I contacted a licensed plumber to repair the plumbing issues. I asked the plumber how pipes that were newly installed (per disclosure) could look so bad. He laughed and said only some of the plumbing was new...not what he was working on. He then found the floor drain was inoperable and corroded closed and the plug had been pulled to offer drainage to the condensate lines that were leading to it.
I contacted the City I live in to get copies of the permits and found the Seller had acted as Contractor for the plumbing and finishing the entire inside of the home! This was not disclosed. The City Inspector came out to the property per my request as I wanted to know how the floor drain which now needed replacement could have passed inspection. The Inspector confirmed the Seller had done the plumbing and he (Inspector)had signed off on all work done to the house.
Long story short (trying!), in the past 2 months I have contacted licensed contractors to look over the installation of HVAC which was completed by the Seller and have found the dryer was not installed per manufacturer's instruction, the duct work leading from the furnace is incorrect, there is a duct vent that was "floored" over and never opened, there was no permit pulled for the water softener which is also not installed per manufacturer's instructions, the "existing plumbing" (which again was disclosed as new) needs updating as it is not to code and an illegal shut off to the main water system was found in the basement floor in the crawl space(covered by a rug).
I sent a letter to the Seller asking why he had not disclosed the above items (as well as a list of others) and he replied that he had by stating my inspection had "uncovered" them.
I am currently in the process of getting quotes to repair and/or replace items in my "totally remodeled, all new plumbing" home and will be taking him to Arbitration.
One of my questions is that although I did have a non-invasive inspection and many of the above items were "found" (and a copy of the inspection was given to the seller), the Seller still never disclosed any of the items found. MN Statute 513.56 paragraph b. states
(b) A seller shall disclose to the prospective buyer material facts known by the seller that contradict any information included in a written report under paragraph (a) if a copy of the report is provided to the seller.
What can I expect from Arbitration? Although this is lengthy...it's only the "tip of the iceberg" as there is much more that I didn't add.
Thank you for your time!
ANSWER: Thank you for your question!
As I always mention to questioners, mediators act as neutral third parties to disputes and never "get involved" in judging the merits of conflict, but merely use special techniques to help the parties decide how to negotiate their own settlement. The case you describe here is unfortunately very typical. I am not a lawyer, nor can I mediate your dispute with just you alone but I can respond to your question from my business consulting experience. Note that this issue may develop legal implications and you may wish to consult an attorney.
There appears to be many "gray" issues that are material to this issue you will have to decipher.
First, many properties are sold "as is" and it is up to you to determine all these hidden items. Unless you can prove an "intent" to defraud it is a difficult matter. It appears that the seller acted as a contractor (OK), pulled at least some permits (OK), had inspectors look over the work and approve it (also OK). The seller does not have to verify the accuracy of the inspectors' work and if they "passed" on the work the seller should have been able to rely on it. The major requirement is to not tell lies, rather than disclose every little creak and crack. Some of what you describe seems sketchy. Terms like "full remodel", "done by reputable contractor", etc. are very questionable and appear dishonest facially. Identify any examples of clear dishonesty.
Second, the seller is not obliged to consider what issues you might consider material, only the issues the seller believes are material, and this materiality debate usually is won by the seller, as you are charged with proper due diligence -- despite what is or is not alleged by a seller. Nevertheless, there may be more case law or statutory law on this issue in MN that further defines playing in-bounds and you may have grounds here. Any "reasonable person" type analysis would find IMO that the issues you are describing are material -- especially AFTER the specific request to respond to matters raised by your inspection. This seems to be your strongest position.
Finally, it is very difficult to characterize what you are likely to see in arbitration I'm afraid. Nearly all these venues have developed a protocol and procedure that is typical to only the specific area and jurisdiction. Your best bet is to try to see if you can locate people who have been through the process themselves to decode what is probable. Perhaps your Realtor can assist here or the court system. Often arbitration is described as a "split the baby" experience rather than justice.
Be sure you document all contracts and every instance of meetings and discussions. Be sure to document all the parties who were there and be as detailed as possible.
These are some ideas. Feel free to follow up with additional questions.
In all my answers, and for your information, the pros and cons of the types of dispute resolution are provided below.
GOOD LUCK!
Arbitration, Mediation, and Litigation
Arbitration: the referral of a dispute to one or more impartial persons for final and binding determination outside of the judicial system
Benefits of Arbitration:
Confidential, no public record
Limited exchange of documentation, information
Quick, don't have to wait for a court date
Arbitrators have expertise in the subject matter and are trained in conflict resolution
Cheaper than litigation
Preserves business relationships
Negatives of Arbitration
It's a compromise, no %100 winner
Complex arbitration can be costly
If not satisfied, may litigate the arbitration procedure
Poor results with an unskilled arbitrator
Both parties must agree to cooperate in the process
Mediation: the process by which parties submit their dispute to a neutral third party (the mediator) who works with the parties to reach a settlement of their dispute.
Benefits of Mediation:
Neutral mediator can objectively suggest alternatives not considered before
Parties are directly engaged in negotiating the settlement
Can be quicker than litigation
Less costly than litigation
Preserves business relationships
85% of American Arbitration Association cases mediated find successful solutions
Negatives of Mediation
may not reach a binding decision
unskilled mediator
Litigation: using the judicial system to resolve disputes
Benefits of litigation:
a clear winner and loser
uses a prescribed set of procedures
more predictable outcomes
is final
Negatives of Litigation:
waiting for court dates can do more harm
usually more expensive than mediation and arbitration
part of the public record
---------- FOLLOW-UP ----------
QUESTION: What types of costs can I ask for through arbitration? Can I ask for attorney costs for the writing of the letter and for representation at the hearing and/or costs for fixing items that were not installed according to manufacturer's guidelines? Would I have recourse with the City as to items that passed code? Can I ask for damages as I feel the property may have been "flipped" to me and may be worth less than the appraised value as the (unqualified) homeowner did the work himself (and not properly)?
I noticed in your above section under Negatives of Arbitration that you state "If not satisfied, may litigate the arbitration procedure". Is this true in all states?
Thank you again!
Answer My experience is that there are a number of "conventions" that tend to become operable in the various usual and customary frequent arbitration venues (such as construction, real estate, health care, government labor, and other areas with frequent disputes that tend to governed by arbitration requirements). These are all different and unfortunately not as uniform as perhaps they ought to be. Be prepared to document these costs for sure. Sometimes other governing contracts (real estate purchase agreements for example) specify that recovery costs may be obtained by prevailing parties. Absent a specific contractual disposition there is no guarantee however and the best bet is to have evidence of other similar settlements where these costs were awarded in arbitration.
As to the City I do not think YOU have recourse, though the seller may have recourse and if successfully sued by you should be looking to file a claim with the city's insurance carrier. Often however, cities have blanket immunity and are off the hook.
As to market value I do not think you have a case here as the responsibility to determine market value was on you no matter what the seller's motivation to sell was. If you think the appraiser was negligent or someone told a lie to the appraiser then there may be something actionable there.
As to litigation post-arbitration, some contracts, industries and venues require "binding" arbitration. Any such requirement would mean you have to live with the results of arbitration. Non-binding arbitration may be litigated. If a crime has been committed (fraud, unlawful conversion, theft) usually there is more latitude to go around binding arbitration clauses.
