As a seller is it legal to sell your house "As-is"?

This will be posted on the Lombardi Law Firm's website and I’m posting it here as well.

I was at a luncheon with central Iowa’s commercial real estate agents this past Wednesday and the subject of an ongoing lawsuit, residential real estate, came up. Bankers like to attend these luncheons because owners, buyers, investors and developers usually mean lending can’t be far behind. Seated at my table were some very experienced bankers from Des Moines. I consider them to be seasoned in the banking and lending business. Any banker that has made it through the crisis will be around for the long haul. But this day over the entree we discussed an ongoing lawsuit about a buyer suing over the sellers not disclosing defects in the home. The problem for these bankers was a critical misunderstanding about Iowa’s Residential Sellers’ Disclosure law.

It seems the sellers tried to sell their home “as-is”. The bankers are stymied about how the buyer can sue the sellers for defects when the buyer bought the property as-is. Everyone at the table wanted to blame the buyer for being too anxious to buy the home and the lawyers for making something out of nothing. Well, not everyone seated at our table thought this. Katrina Schaefer, Barbara (my wife) and I just smiled at those attempting to blame the sue-happy lawyers. I was quick to point out they were all incorrect in assuming that in Iowa anyone is ever allowed to sell a home as-is. There are a few exceptions, but this is certainly not one of them. You can’t do it so why even try to do it.

I start off engaging the bankers by making one simple statement that seemed to get everyone’s attention: In Iowa caveat emptor is dead.

They looked at me with bewilderment written all over their faces. Which is what I imagine is written all over your face too. This is a Latin phrase they teach in law school. 

What’s that caveat emptor stuff anyway?

Caveat emptor is a Latin phrase meaning “let the buyer beware.”

It was, but it’s no longer the law of the land in Iowa. In Iowa the legislature passed a law, requiring sellers of residential real estate to disclose material facts about their homes to potential buyers. And if you don’t you are setting yourself up to be sued – big time.

You have to make the disclosures in writing and they had better be accurate. Because if they are not accurate and the buyers experience problems, then you the seller will be required to pay to repair or to replace because you probably failed to disclose material facts about the home. While it's not a warranty, it is a duty to disclose material defects in the property for which there is a cost if you do not disclose. 

This whole as-is business is passé. You can’t sell residential real estate in Iowa without making material disclosures; PERIOD. So get that notion of caveat emptor out of your head because it will get you in trouble financially. 

And so if anyone is telling you to write ‘as-is’ into the deal don’t.

There is a case right on point where two real estate agent owners crossed out the disclosure questions with a nice big “X” and wrote on the form, ‘Seller never lived in the property’. But guess what that didn’t insulate them from being successfully sued. You can’t change the law just because you don’t like it or think you are somehow exempt. You aren’t and you can’t, so don’t try it.

You see, even professionals don’t understand what the law requires. What is required is a complete and truthful disclosure about anything material to the decision to buy.

Katrina and I have our own proprietary work-sheet and are trying to provide a valuable service to sellers and to buyers. Keep this in mind, if the sellers don’t hire us to assist them the buyers sure can after the sale when this or that doesn’t work or leaks or grows mold or whatever the defect might be.

You can read all about Iowa’s Residential Sellers’ Disclosure law at the Iowa Real Estate Lawyer, blog that Katrina and I write. You can also pick up some news from the Lombardi Law Firm website under real estate.

And if you have legal questions about the sale of your home, don’t hesitate to call Katrina or me to find out if we can help you. As many of you already know I am both a lawyer and a licensed real estate broker in Iowa and enjoy helping people solve problems. So unlike most real estate agents I can give legal advice. So call us at 515-222-1110 or send either of us an email: sdlombardi@aol.com or katrina.schaefer8@gmail.com. 

What went wrong in the Yeboah case?

Nepal, Khumbu Region of the Himalayas

The decision by the Court of Appeals of Iowa in Yeboah vs. Emans most certainly left the West Des Moines, Iowa homeowner-sellers dismayed. Everyone on the sell-side of that deal had to be scratching their heads and left wondering what went wrong. The sellers were left paying the buyers an additional $17,280.92 and then the Court remanded the case back to the Iowa District Court for an award of appellate fees. Obviously the amount the sellers would have to pay was higher than $18,000 and may have easily exceeded $20,000. Unfortunately for the sellers it’s doubtful any insurance policy covered this award; that money more than likely comes out of their pocket and in many instances will reduce the home equity they have to use to buy another home. In the end everyone involved had to ask how this could have occurred. I would guess even the buyers were left scratching their heads.

On that claim, the court found the sellers “had actual knowledge of the existence of a problem involving a leak in the roof of the sunroom” and failed to disclose the leak in their disclosure statement. [Page 3]

The buyers had to be wondering why they were paid for the leaky roof but not the leaky windows. Obviously this blog isn't the place to hash out all the problems with the disclosures so I won’t, but let’s discuss our solution for Iowa sellers.

Like all appellate court decisions we have little to go on except what is written in the decision. A court decision can’t fully describe all the facts; the court provides only those facts relevant to its decision. So I hesitate to extrapolate much from what is stated in the statement of facts, but with just those facts homeowners, sellers, buyers, agents and brokers must try and figure out what did go wrong.

A careful reading of the Court’s decision indicates the Iowa Supreme Court is critical not just of how the form is being used, but of the form itself. I'm critical as well and can easily understand the Court discussing the form in its opinion.

The form also included a list of questions and check-box answers under the heading, “Appliances/Systems/Services.” This portion of the form was designated “not mandatory” and only “for the convenience of Buyer/Seller.” Among the questions was a request for information about the condition of the windows. The sellers checked the box indicating that the windows were “[w]orking.” [Page 1]

Listen folks, the Iowa Supreme Court does not find this form as being adequate. Now I realize most agents aren't attorneys, I get that, but when your clients are being sued, a bell ought to go off in your head that something is wrong. That form everyone is using is terribly misleading.

Who provided that form? And who pray-tell wrote it?

Not even a home inspection uncovered the problems the subject of the alleged defects. That’s bothersome because the sellers and buyers had to be wondering why they were paying so much to so many professionals and getting so little in return. After all what are we paying for? It seems like the inspection amounted to telling them the obvious and then concluding with telling them what they could already see.

Six to eight weeks after closing, the buyers noticed wetness in the northeast corner of the sunroom and wetness in the drywall on the ceiling. Yeboah tore off a deck above the sunroom and found that one wall was soft. The buyers hired contractors to repair the damage. The total cost was $17,280.92. [Page 3]

Katrina, who is a lawyer in our office, summed up the allegations as a failure to fully disclose a leaky roof and damaged windows. This is one of the cases that made me aware of the need homeowners have as sellers for a lawyer to review and to assist them in how to properly fill out the disclosure forms. It made me re-examine the disclosure forms being used and to suggest additional disclosures along with how to position what needs to be disclosed.

The buyers also found that four of the windows in the home would not open. They obtained a replacement cost estimate of $4365. [Page 3]

In this case it’s too easy to simply blame the sellers for failing to disclose a known problem, because they did make disclosures of what they thought was a problem and they took corrective action on what was a leaky roof. I don’t blame the sellers for the disclosure statement but frankly I have to wonder why they didn’t seek legal advice to protect themselves from future claims. Were they told to seek legal advice? Were they told by a person or just in the fine print of one of the half dozen documents they were asked to sign? Take a step back and think for a moment about how this deal went wrong and how it could have been done differently to everyone’s satisfaction – do that and maybe they get paid a little less for the house, maybe they have some additional repair costs and maybe everyone walks away happy with their real estate agents and brokers. The way it worked out no one was happy and who knows what happened to the sellers and how they came up with the money to satisfy the judgment.

Here is what the Court stated about Iowa law: Iowa Code section 558A.2(1) requires a person interested in transferring real property to deliver “a written disclosure statement to a person interested in being transferred the real property.” This disclosure is to include “information relating to the condition and important characteristics of the property . . . including significant defects in the structural integrity of the structure.” Iowa Code § 558A.4(1). The seller is not liable “for the error, inaccuracy, or omission in information required in a disclosure statement, unless that person has actual knowledge of the inaccuracy, or fails to exercise ordinary care in obtaining the information.” Id. § 558A.6(1). A person who violates this statutory provision is ordinarily liable for the actual damages that the buyer suffers. Id. § 558A.6.

From my point of view the blame is easily spread around to all involved and had a more complete disclosure been made the issue would have been remedied for a lot less than what the sellers ultimately paid. And if you ask them today I'll venture to guess they would rather this deal had fallen through then to choose the way it ended after the court case.

This is a difficult part of selling your home, because no home is perfect, not even new homes. We read this decision and as a lawyer-broker I made the decision to restructure how we would do this portion of the deal. We offer this service across the entire state of Iowa, all 99 counties. We can do it via the Internet, phone and/or in-person. Contact Katrina and I if you would like assistance in filling out your disclosure statement.

Call us, contact the Lombardi Law Firm and ask for either Steve Lombardi or Katrina Schaefer. And if you are a buyer with a home disclosure problem we will represent you so long as we do not have a conflict of interest with having reviewed for the sellers.

HOW TO CONTACT US

The Lombardi Law Firm

5000 Westown Parkway, Suite 440

West Des Moines, Iowa 50266

Telephone: 515-222-1110

Fax: 515-222-0718

Write to Steve or Katrina

Email: sdlombardi@aol.com or katrina.schaefer8@gmail.com

Basements Are Often a Source of Concern in Older Iowa Homes

It is too often the case that homeowners focus on the main level of a house when looking to purchase real estate.  Understandably, the main level and second level are where most "living" occurs in a home.  Some people care little or nothing about the basement, except as a space to store items.  However, basement foundations, walls, and pipes are essential to the integrity of the house as a whole and are easily found in disrepair.  Homeowners sometimes neglect the basement condition or forget to care for it as they do the remainder of the house.  This leads to foundation cracks, leaks, and potentially severe water damage.  Older homes are more prone to these areas of disrepair, as materials used several decades ago either were not well-made or are deteriorating after many years of use.

When looking at real estate during your house hunt, it is imperative to closely examine the condition of the home's basement and foundation.  In many cases, water leaks have been repaired or damage has been covered up.  This does not mean the problem is "fixed" - you must be aware of what the problem was and what the potential issues may be in the future.  Even newer homes have the potential for water leakage and damage, especially in low-lying areas around Iowa that are subject to floods and heavy waterfall.  Check your property and the surrounding area for water drainage issues before you purchase your home.

I Thought They Said This Worked?

You are a home buyer. You bought the house, started turning it into your home and to celebrate invited over some guests for a nice dip in the hot tub. While you are fixing guacamole, your husband is turning on the hot tub. In less than one hour everyone will be here dressed in their swimming attire. Only problem is your husband just announced the hot tub doesn't work. 

On Monday the repairman shows only to hand you a bill for $1,700.00 to fix the internal parts that had been poorly maintained. You've owned the home for less than two weeks. 

What do you do?

Do you:

1. Pay the bill?
2. Call your agent?
3. Reread the sellers’ disclosure statement?
4. Send the disclosure statement over to your agent to present to the sellers?
5. Start a file for the other problems that may soon show up?

Actually you do all of the above and if no one wants to get out their checkbook, you end up calling a lawyer. That sellers’ disclosure statement is key to deciding who will pay the hot tub repair invoice. So pay attention to what is said in the Iowa Residential Real Estate Disclosure Form. And do so before you purchase a new home.