Expert: Diann Tonnesen - 4/9/2009

Question
Just over 2 weeks ago my husband and I put an offer in on a house. This is our 1st time purchasing a home and we didn't have a realtor representing us. We've been looking and had worked with a realtor in the past but didn't like her services (or the other ones that we had called) and so we decided to do this on our own. The sellers realtor informed us that we wouldn't need one to put an offer in so we went forward with it. We read the disclosure and I specifically asked the sellers realtor if the house was in the flood plain which the realtor said NO and the disclosure said NO. 2 1/2 weeks later our bank is requiring us to get flood insurance since the house is in the flood plain. I contacted the realtor and he had informed me that there is a LOMA letter out on the house but the house is located in the flood plain. We are fighting with the bank trying to get them to wavier this but they are not budging. I feel that we were lied to in the disclosure and that the realtor knew this but did not informed me of this. If I would of known this then we never would of put an offer in. My husband wants to back out but it is just 2 weeks before our closing date and the realtor informed us that the sellers can sue us for breaking the contract. Is this true and is there anything we can do to resolve this situation on either 1) wavier the flood insurance by the LOMA letter, or 2) voiding out the contract since it was not in the disclosure. Please let me know asap!

Answer
Dear Shannon,

The answers to all your questions depends on what is actually in your contract. Most states have some language in their contracts that say that if the buyer discovers a "material defect," they have the right to cancel a transaction. The home being in a flood zone would certainly seem to come under the heading of a material defect. Also it would seem that if the disclosure said that the property is NOT located in a flood plain but it actually IS, that this would also give you the legitimate right to cancel.  

Also something else you can check in your contract is the seller's recourse against you if you just cancel a transaction. This is usually spelled out in detail. In our state, for example, there are two boxes that could be checked. One says that the seller's only recourse is to retain the buyer's earnest deposit. The other says that the seller may be able to sue for actual damages. In over 25 years of real estate I have only seen one instance where the seller was able to successfully sue a buyer for breach of contract and collect damages beyond the earnest deposit.

I would suggest taking a copy of your contract in to the Real Estate Division offices of the state you are located in, a local real estate attorney, or the local MLS board. Based on what you have related it is definitely worth checking into. Make sure you document all conversations and have all your paperwork ready and good luck! If you are able to successfully cancel this transaction, and I think you will be unless there are facts I am unaware of, I would highly suggest that you find a Realtor you are comfortable working with that can represent YOUR best interests in your next transaction. Interview several until you find one you feel you can work with.