Expert: liznarr - 6/6/2010

Question
we are in a contract and right when we are ready to close we found out that the town was called on the house we want to buy and the seller had made some minor updates to be at code. ( we didn't know he didn't have a CO for some part of the house) once we found out we wanted to see what was done since we were never told of what was being corrected. come to find out the basement we once saw that was finish is completely gutted. we priced the house because it didn't need any work and had everything finished. my question is can we ask them to either lower their price or how can we cancel the contract.

Answer
Hi Ana,

You need to first read your Contract of Sale and understand the language in it.  When problems occur, the first place you should be looking is your Contract of Sale.  Hopefully, you had an agent representing you.  If so, get your agent involved immediately (or your agent’s Broker-in-Charge).

I am assuming that you did NOT have a home inspection performed on this house, because a good inspector would have caught some of the items you say were not up to Code after Seller made repairs.  I would caution you to NEVER obligate yourself to purchase a home (usually the largest single investment a person ever makes), without the benefit of a home inspection by a qualified, licensed, reputable home inspector.

I’m going to give you some general information below based on my experience, but I am not qualified to give you legal advice.  You should contact an attorney in your area with legal questions as they apply in your case.

I don’t know what state this house is located in, but most states have laws requiring Sellers to complete a disclosure form on residential property sold, especially if it is a Seller’s principal residence – and this usually applies whether or not a licensed agent is involved; Sellers must disclose in writing if state law requires.  

If you did not receive a disclosure form signed by this Seller, you can call your State Real Estate Commission and find out if such a form is required to be produced by a Seller, usually PRIOR to an executed Contract of Sale.

There could be several scenarios here.  

If your state requires a disclosure form be filled out by a Seller, and …

1.   … You DID NOT receive a disclosure signed by seller, you may have grounds to terminate your Contract, or

2.   … You DID receive a disclosure signed by seller, but the Seller did not disclose that work was done on the house (with or without a permit to perform the work); and the work was not to Code and Seller either did not request a permit and/or did not receive approval on any work that was done, you may have grounds to terminate your Contract.  This is commonly referred to as fraud (intentional misrepresentation), and fraud is illegal in all 50 states, or

3.   … You DID receive a disclosure signed by seller disclosing that work was done, but this Seller failed to inform you the work was not to Code and no approval was ever obtained on the work, you probably have grounds to terminate.  Again, fraud.  Fraud is not necessarily just misrepresenting a material fact, but the OMISSION of a material fact can also be fraud.

I stated that you “probably” have grounds to terminate, because I have not seen your Contract of Sale.  Even if I had seen and read it, I am not qualified to give you legal advice, only my general understanding as it relates to my experience in my area of the country.

For states that do require Seller property disclosure forms, if there any changes to the property (especially major changes or damages/defects discovered or occurring after the initial disclosure form was signed), a Seller is required to UPDATE the disclosure form and notify potential purchasers of any changes – and this requirement applies up to the time you get to the closing table.  

To go in and gut a basement prior to closing would be considered a breach of contract.  You cannot contract for one thing, and then get to the closing table and find out you have substantially less than what you bargained for.

Based on what you have written me, until you can get good legal advice on how you should proceed under your Contract of Sale, I would strongly suggest that you to refuse to close on this house.

Your only remedy AFTER closing would be to litigate, and for a Seller as unethical as you have presented in your writing, your chances of collecting anything from him/her through litigation after closing would probably be either slim or none.  I’m sure you’ve heard the saying that goes along with the previous sentence:  “And slim just left town.”

If you were willing to still purchase this house at a reduced price, you should obtain estimates from at least a couple different licensed contractors to do all the work required.  Again, however, please get some legal advice before you do anything, other than refuse to close.  And if you did not previously have a home inspection performed, insist on doing one prior to closing if you agree on a reduced price.  There’s no telling what else you might discover about this house.

I hope the above is helpful.  Good luck to you, and feel free to write again if you have additional questions.

Regards,
Elizabeth