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. 

My Realtor Is Telling Me Not To Worry About Disclosing Too Much

If your real estate agent discourages you from making a full disclosure that is bad advice. Your response back to your agent should be to put it in writing. I’m going to guess when you ask for that advice in writing you won’t get it. Why? Because it’s the wrong advice and your agent doesn’t want to be sued along with you if at a later time the defect turns into a claim by the buyer.

Your obligation is to disclose defects and when you know one exists you simply need to accurately disclose the nature of that defect. 

One area I find troublesome is when a defect existed, was fixed by the homeowner and the fix really didn't correct the main problem. Recent Iowa Supreme Court cases don’t seem to allow sellers to just fix the problem and then not disclose its nature. If a problem existed in the past it could be the sign of a larger issue and as the seller under Iowa law you have to disclose it. I think you have to be careful about how you analyze how to correct a defect because if you miss something you will pay for it at a later date. 

For buyers this is an important point to understand. 

So just doing a home repair is usually not the answer or a defense against a later claim. And failing to disclose because you believe it will not invite higher offers is like playing Russian roulette.

My advice is to disclose the nature of the exact problem and if we can help you contact Katrina and I at the Lombardi Law Firm.

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

Is checking off “Yes” enough to protect you from a lawsuit?

The quick answer is “NO”.

Why?

Because when you say yes you are indicating there is a problem, but a monosyllabic response discloses nothing about the exact nature of the problem. While checking yes may invite an inquiry from the seller; as a seller you have no idea how that will be understood or explained by anyone. The seller is the one with the duty to disclose which means you have to disclose the problem not just that there is a problem.

From a legal standpoint if caveat emptor is dead then so is hiding the ball. Buyers have a right to know what they are buying and if you know there is a problem with your real estate then you have to disclose the nature of the problem.

What is caveat emptor? It means let the buyer beware. In law it means the buyer has the obligation to make sure the property doesn't have defects. Check out Wikipedia and Merriam Webster's definition.

Now let me tell you what the yes means to a lawyer.

Yes means you the seller know there is a problem so that is an admission by the sellers, but that answer fails to disclose the exact nature of the problem. So thanks for the admission; now get out your checkbook.

As the seller of property you have an obligation to fully disclose the nature of the problem as you understand it and just saying there are issues isn't enough to avoid later being sued.

So disclose the nature of the exact problem and if we can help you contact Katrina and I at the Lombardi Law Firm.

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

Are the terms of that offer in the sellers' best interest?

We need to stop trying to dumb-down what we do for a living. I mean it. Are we not in this business to service clients? We are aren't we? I am and I hope you are as well. So when you hand the client the offer, how do you know if the terms of this offer are in their best interest? Is price and whether it is cash versus a loan the only two things you look at? Assuming that is all you look at and we know that is true 99% of the time then is that really a professional grade service? 

If I can teach a college freshman to do your job as well as what I have just described, why isn't your salary nothing more than minimum wage? Are you hearing me?

You can buy a flat-screen TV and get more service than what I have just described, so why are you getting paid 6%? Why aren't we being paid like a TV sales clerk? Consumers probably know more about the warranty on a $600 flat-panel TV than they do the Offer & Acceptance Agreement costing them more than $100,000. Does that make any sense to you? Not to me it doesn't.

When you look at the offer to buy and consider what to tell your client think LARGE! Think legal review because for most of your clients this is the largest purchase they will ever make.

Consider these ten points:

1.    What in the offer isn't good for sellers?

2.    When your agent, yes your agent, hands you this written offer on a pre-printed form do you ever wonder if there are terms in the offer that are not in your best interest?

3.    Most sellers look first at the price and the then the finance contingencies. But what else is in the offer that can later be used against you?

4.    Which terms of the offer aren’t in the sellers’ best interest?

5.    Which terms can you delete?

6.    If you delete terms and the buyers walk then what?

7.    What pressure placed on you by a real estate agent is misplaced?

8.    What amount of pressure placed on you is just flat-out wrong?

9.    Who is protecting your legal interests?

10.  And lastly, who isn't?

As a seller you need to know the terms of the offer aren't going to come back later and encourage litigation. You can't give legal advice but you can stress the advice that the buyer needs legal advice and that my friend is a professional service. And maybe this deal stalls and doesn't go through, but so what if they tell all their friends about what a great real estate agent you are. 

So consider hiring our law firm to assist you with the sale. Because I realize what you want is some simple formula that I put down on paper, you follow it and bingo the sale goes through. But if what you do, what we do, is as simple as a formula why do they need to pay us 6% to do it? Why aren't we just getting paid $100 as if it were a new car sale? Now do you get my point? This isn't simple, it never was and never will be and that is why you get 6% to divide between the four of you. When you ignore the need for a lawyer you are oversimplifying the real estate business and when we dumb it down sooner or later the FISBO deal looks like a better way to buy and to sell real estate.

This area of the law is a mine field – so don’t be the one who steps on a landmine. Call us, contact the Lombardi Law Firm and ask for either Steve Lombardi or Katrina Schaefer.

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