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.

Ladenburg’s Statistics Counter Tort Reform Argument

June 20, 2008

I attended a seminar at which John Ladenburg, the Pierce County Executive and candidate for Washington Attorney General, spoke and gleaned some statistics that I thought I’d share. We often hear about the crippling burden of litigation and the extravagant liability that businesses and government are exposed to.

Most governmental entities insure against litigation expenses and awards but Pierce County decided to cancel its policy and self-insure. In the course of doing this Pierce county kept careful track of its litigation and related expenses. The results are surprising.

From 2001 through 2007 Pierce County was involved in a total of seven trials and binding arbitrations. One each year on average. The County won all the trials and lost two of the three arbtrations. That’s two adverse results in seven years.

To sue the government a person must first file a claim. These claims are investigated and the County reports its decision on the claim to the claimant. About half of the claims are paid because they are meritorious, although usually payment is for less than the amount asked.

The half which are not paid, after receiving the explanation from the County, usually drop their claims. Only about roughly three to six percent of the claims result in lawsuits in Pierce County. Once filed, the vast majority the lawsuits against Pierce County are dismissed or settled.

This procedure in which the people’s claims are treated respectfully and a fair settlement is sought from the beginning has resulted in cutting amounts paid in the settlement of claims almost in half over the seven year period. This approach has saved the County a great deal of money.

Mr. Ladenburg’s impression is that high jury awards and huge litigation expenses are not the result of frivolous claims by litigation-crazed citizens, but a result of the aggressively adversarial treatment of people with claims. By refusing reasonable claims and settlement offers, governmental (and other) entities add to the burden on the courts and increase their own risks.

If you have ever been in a lawsuit with a big corporation or governmental entity, chances are that you perceived a refusal to entertain a settlement offer you thought was reasonable and a strategy that drove up the cost of the litigation. The strategy of some “deep pocket defendants” and their insurance companies is to make the litigation prohibitively burdensome and expensive, so people cannot see it to conclusion.

Mr. Ladenburg’s statistics suggest that plaintiffs are generally reasonable and those who are not reasonable meet with an appropriate fate in court. Corporations (governmental and private) that are aggressively litigious must bear a significant share of the responsibility for the caseload imposed on our courts.