CORRECTION: The original version of this article contained errors relating to disclosure requirements by banks in transactions involving real estate owned (also known as bank-owned or REO) properties. Banks selling REOs are subject to some disclosure requirements in some states, and these requirements can vary from state to state.
In California, for example, the California Association of Realtors notes at a legal services website for its members: "The continuing foreclosures by banks and other private lenders and subsequent sales of these properties, including (REO properties), necessitates knowledge of the disclosure requirements when selling these properties."
DEAR BARRY: We bought our home two months ago and have discovered three defects that our home inspector overlooked. These include a water leak under the kitchen sink, a gas leak in the front yard, and an unsupported PVC pipe for the front-yard hose faucet. Is our home inspector liable for these defects? –Lissa
DEAR LISSA: Some of these defects may involve liability and some may not. Here is a short review of each of these items:
1. If there was a visible plumbing leak under the kitchen sink, your home inspector probably should have seen it. If the cabinet below the sink was packed with miscellaneous stuff, the problem may not have been visible on the day of the inspection. In some cases, storage prevents the discovery of defects during an inspection.
2. If the gas was leaking at or near the exterior of the building, the inspector would most likely have encountered it. If the leak was occurring in one of the yard areas away from the building, it could easily have been missed.
3. If the yard faucet is installed on an unsupported PVC plastic pipe, support is needed to prevent breakage, but this is too simple a repair to involve concerns over liability. All that is needed is a metal stake driven into the ground and strapped to the PVC pipe.
When issues such as these arise, the home inspector should be contacted immediately. Reputable inspectors will address these concerns by revisiting the property to see what may have been missed. A mistake many people make is to have the problems repaired and then contact the inspector to demand payment.
When liability issues occur, the inspector should be given the opportunity to see what was missed during the inspection. Home inspection agreements, in many cases, specifically require notification prior to making repairs.
Hopefully, you have a home inspector who takes pride in his work and will seriously consider your concerns.
DEAR BARRY: We bought a foreclosed home, as is, from a bank. When we removed the old carpet, we found large cracks in the slab, leading to costly foundation problems. The contractor who repaired the foundation found evidence of previous foundation repairs that were done incorrectly.
We searched the county records and found that this older work had been done without a permit. Is the bank that sold us the properly liable for not disclosing this problem? –Carrie
DEAR CARRIE: Check to see what the disclosure requirements are in your state. Banks may be exempt from some — but not all — disclosure requirements, depending on the state. Banks may be unfamiliar with details about the condition of the homes they acquire through foreclosure unless disclosure of those specific details is mandated by law.
If you had bought the home from a private party, that person might have had knowledge of the substandard foundation repairs and would have been required to provide disclosure. In your case, the bank may not have been aware of the problem — check to see whether that particular disclosure is required, by law, in your state.
Unfortunately, some banks take advantage of disclosure loopholes by avoiding information that they might have to disclose if they are aware of that information. For example, if you had hired a home inspector and had then decided not to buy the property, the bank may not have requested a copy of the report.
Without having seen the report, the bank could maintain plausible deniability with other buyers.