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Disclosing real estate defects

When you buy a home or other residential real estate, Minnesota, and most other states require that the seller disclose any defects in the property that could damage the home or the buyer use of the property. One of the most common problems is water intrusion, caused by leaks in a roof or basement.

These types of problems can be the result of construction defects, such as a drain tile system for a foundation and basement floor being improperly installed, windows flashed with substandard materials, a roof with defective shingles or poorly installed valleys. 

For a buyer, the problem can be hidden within the wall, floors, attic or foundation, and may only occur when certain weather conditions occur. Defective electrical wiring or plumbing may be another issue that would be virtually impossible for a buyer to discover, short of tearing up floors and walls.

A case from Colorado underscores the risk. Some investors purchased homes, fixed them up and resold them. One home was built on expansive soil and the investor's repaired the damaged foundation, and resold the property to a buyer.

The foundation was again damaged by the soil and the buyer sued the seller and won. An important element to note here is that this liability only applied because this case involved an undisclosed defect. If the sellers had disclosed that the foundation of the home had been damaged by expansive soil and that it had been repaired, the sellers would not have been liable for damages.

With that knowledge, the buyers may have asked for a reduction in the price of the property, factoring into their new offer price the potential cost of repair. The seller would have received a lower price for the property, but would have saved the expense of defending and losing the lawsuit.

Source: Gazette.com, "MONEY & THE LAW: Drill down hard on all disclosed latent defects," Jim Flynn, January 15, 2014

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