As a seller, do I need to inform buyer of repaired water damage?Originally published in The Chicago Tribune
by Benny L. Kass
Q: Is it necessary — or legally required — to inform a potential buyer you had water damage in the past? The areas that were affected have been completely redone under the supervision of my insurance company, the association’s insurance company and our very competent management company — everything is up to par and better than before.
A: This is a great question, and it involves much more than water damage. It applies to almost everything in the house (or condo) that you have already fixed. I get this question a lot regarding lead paint.
You had a problem and it is now fixed. Technically, since there is no longer any more water damage (or lead paint), you do not have to disclose. But let’s play this out a little. You sell your house, and less than two years later (still within the applicable statute of limitations) your buyer calls you and says, “I have a water leak in my basement and my neighbor told me you had a similar problem. You did not disclose this and I want you to pay me for the repair costs or I will get a lawyer and sue you for nondisclosure.”
As you can appreciate, we lawyers love this — it’s more business for us.
Seriously, my approach has always been disclose, disclose, disclose. What are you afraid of? You had water damage and took appropriate steps to correct it. To your knowledge, the problem is fixed.
I would disclose the fact that you had water damage (identify where), and that you had it repaired. You can even volunteer to provide proof of the repairs to your purchaser if they go to closing (escrow).
In my opinion, that’s a safe harbor. What can your buyer complain about? You told them about a problem and it was corrected. They are not buying a brand-new place — things happen to older homes. And presumably the buyer also had a home inspection contingency, and the inspector did not find any damage.
Transparency — in my opinion — is the best option.
Q: When a condominium association needs to make a decision regarding a choice between a special assessment versus increasing monthly condominium fees, which is wiser? Our over-55 community has six subassociations and unfortunately ours has depleted its reserve funds due to the repair of some extensive structural damage for which the builder is no longer responsible after almost 14 years. The property management company contends that an assessment is less desirable and would result in a negative for the entire development. I feel that a seriously depleted reserve fund is more detrimental and should be addressed with an assessment immediately versus increasing the monthly fees.
A: You asked a very good question, but unfortunately, there is no easy answer. This cannot be answered in a vacuum; we have to look at all of the facts. And perhaps the most important fact is to analyze the makeup of the owners. Can they afford a large assessment? Will such an assessment trigger more defaults? This would make your financial situation even worse.
What repairs are immediately needed? Has the board considered getting a bank loan, especially now that interest rates are low? Has the board considered a combination of assessment and increased monthly fees?
Bottom line: The board — with the input of owners such as you — should carefully consider all of the facts (and all of the various options) before making a decision. There is no universal answer.
Benny Kass is a practicing attorney in Washington, D.C., and in Maryland. He does not provide specific legal or financial advice to any reader. Readers may email him, but he cannot guarantee a personal response.
Date : 1/2/2018