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.

Conveyance of Real Estate

February 22, 2008

The statute of frauds is an example of the path of good intentions often leading into the thicket of dispair. Washington’s statute of frauds for real estate conveyances (RCW 64.04.10) requires that any agreement to convey land be in writing and that there be a sufficient legal description of it. This was intended to prevent people from falsely claiming that they had an agreement to purchase land or that land had been given to them by oral agreement. Rigid adherence to this rule though has often achieved the opposite result. An insufficient description of the property on an earnest money agreement has allowed people, both buyers and sellers, to escape their written agreements.

In 1949 the Washington Supremem Court decided to take a hard line on this matter and follow the monority of states by declairing that any agreement to conveyland must contain a full legal description, thereby allowing people who used a street address or shorthand description to escape from their contracts.

Because legal descriptions are usually not available when contracts are signed this meant that many, if not most, contracts to buy land were avoidable by either party. Trying to avoid the obvious unfairness of this result courts with increasing frequency started applying exceptions to the statute of frauds, trying to prevent it from becoming an instrument of fraud.

The result has been confusion about whether any given contract of sale is enforceable. Real estate agents started using tax lot numbers, as these were usually more accessible than legal descriptions (which more often than not were meaningless to the parties anyway), thinking that this satisfied the statute of frauds. Recent case law however makes this practice unreliable.

Rodney Tom, a representative from Bellevue, sponsored a bill intended to alleviate the plight of real estate agents and their clients. Senate bill 6514, as amended, recently passed the senate and was sent to the state house. This bill provides that henceeforth the use of tax lot numbers, instead of the full legal description, satisfies the statute offrauds with respect to contracts to convey land.

This is an easy solution, or partial solution, to an ill-advised 59 year old decision.