Traps for Unwary Real Estate Buyers

July 7, 2008

I was asked to briefly summarize some of the legal considerations that a buyer might keep in mind while venturing into the real estate market in Washington. I think something like this might prove to be helpful so long as you keep in mind that this is not a comprehensive list of all possible difficulties. Here is a short list of legalities that might be helpful to buyers of real estate to keep in mind.

New Construction. Washington has an extremely harsh “statute of repose.” Six years after the final permit is issued all recourse against anyone working on the project is barred, exect as to damage that has already arisen.

If for example you buyer a building, or bridge that collapses six and one half years after the last permit, you have no recourse against anyone in the construction industry.

The Washington statute of creates false expectations in the minds of consumers.

If you buy a building with a useful life of forty years you expect it to last that long. In Washington you can only count on six, assuming that you are buying a new building. If you are buying a used building, it is very likely that the six years have passed and you have no recourse whatsoever against anyone involved with the construction of it.

People who spend money to retrofit buildings , to make them earth-quake proof, must remember that they have no recourse against the engineers or builders if the work is faulty, assuming that the earth-quake occurs more than six years later.

This puts a premium on investigation and study before buying. It also puts a premium on the purchase agreement and the ability to look to the seller if there are latent defects. With respect to construction, owners should consider taking these things into account in negotiating contracts.

Building Codes. Many residential buyers put stock in representations that the building complies with code or they just rely on the fact that the building had to be inspected and approved by local government before it could be occupied. This does reduce the chances of defective construction but it is a long way from assuring the purchaser that the construction is not defective and there is no assurance that the building in fact complies with code. There is no recourse in the usual case against the city or county if the building was approved in spite of noncompliance — and this happens.

Form 17. The Seller’s Disclosure Statement required in residential sales has recently been interpreted (see my last entry) as unenforceable by one of our three courts of appeals. This can be cured by modifying the standard forms, but it certainly opens the door to using the form as a tool of deception.

Bad Materials and Workmanship. There are a number of cases in Washington in which purchasers have been held to be without recourse when the property they purchased was defective. The “economic loss rule” is invoked to hold the buyer without recourse. This result can be avoided contractually.

Verbal agreements. The form purchase and sale agreement in common use says that there are no other enforceable agreements. That means that agreements — even written agreements — outside the purchase and sale agreement are at least of questionable enforceability.

“Merger into the Deed.” When the transaction closes many of the terms and conditions of the agreement are terminated. Discovery after closing of a false representation may be too late if the representation or assurance is deemed to have been merged into the deed. This can be avoided by care in writing the contract.

There are of course other issues that arise but this at least gives you a sense of the care that must be taken in protecting an important investment such as buying real estate.

Please note that in the last legislative session a very modest bill was introduced to confer limited rights on home buyers. The bill was killed by the Democrats, particularly Frank Chopp.


Washington State: Haven for Special Interests

March 30, 2008
It is my impression that Washington, more than perhaps any other state, is led by special interests. My impression is based in part at least on my law practice which focuses on real estate and business, so my awareness of this influence is pretty much confined to those areas.Let me give you a few examples of what has given me the impression that special interests are more influential here than most other places.
Perhaps my most shocking moment practicing law occurred when, during oral argument before the State Supreme Court, a representative of the insurance industry pointed to the justices and told them that his people were closely looking at how each one of them voted on this case and the insurance industry would be heard from come election time. (I am paraphrasing here but this message was loud and clear.) I thought that this was a truly shocking insult to the integrity of the court, but the justices said nothing.
In the area of construction law Washington is I believe the most repressive with respect to consumer rights. Did you know that if a building or bridge collapses six years after it is permitted, there is absolutely no recourse against anyone in the construction industry, including builders, suppliers, architects, engineers, even surveyors and anyone one else claiming to be in the industry? Condominium owners have no recourse if their building collapses four years after it was permitted (although this is a little murky). In Washington, at least with respect to being able to enforce warranties and representations, all the talk about the useful life of structures is bogus. After six years (four for condos) no one is responsible.This is the result of Washington’s statute of repose, which is jokingly said to have received that name named because people had to be asleep for the legislature to get the law through.
Other states have statutes of repose. These were pushed through state legislatures by an unprecedented lobbying effort on the part of the insurance and building industries in the 1960’s. Washington’s four year statute for condos and six years for absolutely everything else is extremely rare among the states and may be the shortest of any state. If you buy a new condo you should know that you are stuck if anything (however disastrous) goes wrong four years after the permit was granted, which is ofter about two or so years after it is filled.
To give you a sense of the influence of the building lobby, in Washington say a school building collapses six years after completion and kills a child whose watch stops for no good reason. There would be no recourse against anyone in the construction industry but the parents could sue the watch manufacturer for the cost of the watch. Personal property here has a twelve year (or the useful life of the product) statute of repose.
Perhaps the best indicator of the exalted state of special interests here is that when three sitting justices of our State Supreme Court announced last week that they were seeking reelection, the newspaper interviewed not a law professor or someone who practices before the court, but a representative of B.I.A.W., the building industry lobby.

Statute of Repose: A Vehicle for Fraud

January 19, 2008

Washington’s construction statute of repose gives immunity to responsible people for damages that do not accrue until 6 years after the project — whether a bridge, a highrise, earthquake retrofitting or anything other than a condominium, which is 4 years — is put into the stream of commerce. This puts the burden of catastrophes on the victims.

Statutes of repose have been attacked constitutionally in a number of states. The result has usually been that the state legislature — at the behest of the building and insurance lobbies — passes a new law meeting, or appearing to meet, the unconstitutional aspects of the overturned law. Over the last several years the use of the statute of repose to avoid liability has increased. Increasingly we are hearing outcries about the injustice of its application.

In Minnesota a bridge failed killing many people. The local government had paid for a one hundred year bridge but when it failed after fewer than 20 years because of a design defect, the responsible people were render immune from suit by that state’s 10 year statute of repose. Only this summer — after the disaster — did legal professionals express outrage at the injustice of being unable to enforce warranties and representations that were a material part of the purchase price of the bridge.

In New Jersey the Supreme Court is considering a case in which a condominium developer made express representations to consumers knowing that they would rely on them. When these representation turned out to be false, the developer hid behind the statute of repose.

It is terribly hard to find a reasonable justification for Washington’s 6 year statute of repose, particularly when a new building is usually given a useful life of around forty years. Projections, pricing and even tax depreciation are based on the useful life of the building, bridge or other improvement. Despite all this we give immunity to everyone in the construction industry after 4 or 6 years.

The excuse — and it is a transparent excuse — for the law is that it would be too hard to determine the cause of a catastrophe after 4 years in the case of a condomium and 6 years with all other construction. The 4 year condominium law was passed however only because the responsible parties could be identified with certainty and there is absolutely no engineering difficulty determining causation that occurs after 6 years. Furthermore, the burden is on the plaintiff to prove causation so if it can’t be proven the suit fails. It is said sometimes that there might be intervening causes but this too is something that the system is supposed to address anyway before a judgment can be entered.


Immunity for Causing Bridge Collapse

January 15, 2008

There’s a great controversy right now (obscured somewhat by the campaigning) about whether telephone companies ought to receive retroactive immunity for cooperating with the federal government in illegal wiretaps. (There would be no need for immunity without liability; if the telephone companies were not liable to their customers, there would be nothing for them to be immune from.) Meanwhile, other legislative immunities go unexamined.

For example in Minnesota it was determined that last year’s bridge collapse that killed thirteen people was due to a design defect. In Washington State the construction industry as a whole has absolute statutory immunity from claims arising from any disaster that occurs more than six years after completion of the project. The full weight of the disater falls on the victims. You may say “Well at least they could recover from the insurance companies” but no, the insurers of the responsible parties are released if their customer has no liability. So in Washington no matter what the scope of the disaster there is simply no recourse for the victims of construction-related calamities. Except of course with respect to condominia, where there is immunity for any disaster arising only 4 years from completion.


Before Washington’s Statute of Repose

January 4, 2008

On January 3, 1923 the Allen Street Bridge in Kelso, Washington collapsed. More than 35 people were originally estimated to have been killed although the actual number may have been less than that. Shortly after that a bridge in Issaquah collapsed due to a design defect. In each instance lawsuits were brought by the injured and on behalf of the deceased and the Washington State Supreme Court, finding rather substantial negligence, allowed recovery.

Recovery for injury, death and damage caused by design defects or construction defects was possible at that time, but would not now be possible, no matter how many people were killed or injured. In the late 1960’s the Washington legislature passed a construction statute of repose which barred any action whatsoever related to construction if the claim arose six years or more after the completion of the construction. If a school or bridge collapses more than six years after completion there is no recourse in Washington for construction or design defects.

In the 1990’s there was a great deal of difficulty arising from condominium construction, often in connection with defective materials. The Washington legislature’s response to that was to pass a construction statute of repose that barred any lawsuits related to defective condominium construction — whether negligent orĀ  even involvingmintentional violations of the law — arising more than 4 years after completion of the condominium project.


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