Protect Yourself When Buying a Home in Washington

July 3, 2008

Making an offer on a house is such a tense experience and so pregnant with the possibility of surprises and disappointments, that I thought I’d discuss residential purchase and sales transactions outside of the foreclosure context.

Tuesday the Washington Court of Appeals published a case out of Pierce County that illustrates some of the confusion in the Courts about a buyer’s remedies. The decision is called Stieneke v. Russi. The facts are not terribly unusual but they represent every buyer’s fear.

The Steineke’s found a home they liked in Gig Harbor, signed a purchase and sale agreement with an inspection contingency and then received a “Seller’s Disclosure Statement” (sometimes called form 17), as required by law. The inspector gave clean bill of health, but said that he could not inspect the roof. The disclosure statement said that there had been no difficulties with the roof and the seller, Russi, assured them that he had not had any problems with the roof.

The buyer’s closed, had the roof pressure treated and began enjoying their new home . . . until it rained. Their house was inundated causing damage to the interior. The trial court had no problem awarding damages but the Court of Appeals was not so generous.

The court’s analysis strongly disfavors buyers. It held that there was no breach of contract because the contract did not say anything about the roof and it had an integration clause that said there were no other agreements. The Seller’s Disclosure Statement said that it was not part of the contract so the false statements in that form could not create a breach of contract. The court indicated that there might be no remedy for false disclosures because of the wording on the form.

The buyers also sued in tort, claiming misrepresentation and fraud. The Court held that the economic lass rule (which I’ll discuss another time) barred any remedy for misrepresentation. Fraud has a very high standard of proof and the Court of Appeals sent the case back to the trial court to determine if the standard of proof for fraud had been met.

Hopefully there will be review of this case by the State Supreme Court because there is some conflict among the cases as the the legal status of the disclosure statement.

Meanwhile buyers ought to guard against this happening to them. The first rule of thumb is to always get a seller’s representations in writing. The lesson of this case is that all writings, including the seller’s disclosure statement should be made a part of the contract. This can be done on the face of the statement.

Finally, scrutinize those statements and follow up with questions and require written answers.