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Home Purchase Down The Drain

You feel like the luckiest person on the face of the earth. After years of making do with the your cramped apartment, and saving your pennies for a down payment, you are able - finally - to buy your first home. You move into your dream castle in July, and enjoy barbecues in your big back yard.

Then the fall rain begins. Your back yard slowly turns into a marsh, which slowly turns into a swamp, which slowly turns into a pond. You discover squatters on your little Shangri-La: frogs, to be exact. Your dream home becomes a Motel 6 for migratory foul.

After some rigorous investigation, you discover that the flooding is caused by a blocked storm drain on an uphill neighbor's lot. After talking with your neighbors, you learn that your property has been Camp Swampy for the last ten years.

You pull out your personal file of the purchase on your home, and look at your Seller's Disclosure Statement form, which is required by law for the sale of all residential property. One of the questions specifically asks, "Is there any standing water or drainage problem on the property?" The answer, clearly penned in by the seller of the property, is "no."

You begin to do a slow burn. You call up the seller, and are told an amazing thing: "The broker made me do it." The sellers of the property told their broker about the flooding, but the broker said they could answer "no", to that question because they had taken steps to correct the problem. The sellers still asked the broker to tell potential purchasers that there had been a problem in the past, but that steps had they had corrected the problem.

You discuss the whole mess with your spouse. Neither one of you can remember a single time the broker said anything about a drainage problem, corrected or uncorrected. You go out onto your back porch to seek the counsel of four Canadian geese who seem especially sympathetic to your plight.

"OK," you mutter, "I am not taking this sitting down. But what do I do now?" From the remote watery back corner of your lake front property comes the clear reply.

"Honk."

In a recent Washington State Court of Appeals case (Svendsen v. Stock, 979 Pacific Reporter 446 June 28, 1999), Division One of the Court of Appeals upheld a jury verdict in favor of the buyer. The court held that the broker could be held liable to the purchaser when the Seller Disclosure Statement contained an error or omission which the broker had actually known about. The theory for the lawsuit was "fraudulent concealment" by the broker. This theory requires "substantial evidence" that the broker "had knowledge of an existing material defect on the property, not reasonably ascertainable to the buyer, which she did not disclose."

The court noted that a broker cannot be held liable if the drainage problem was not actually known to the broker, even though if broker should have known about it. In addition, a broker cannot be held responsible if he reasonably believes that these problems have been corrected.

Nevertheless, the court held the broker liable in this particular case because the seller had specifically told the broker drainage problems which existed the previous year. In addition, the seller had asked the broker to disclose those problems to potential buyers. The broker had not done that.

The broker also could have escaped liability if she had relied on public records for proof that the problem had been corrected. In this particular case, however, the only information the broker relied on came from conversations with the seller and neighbors.

The Court held the broker liable for the cost of installing a gravity drainage system for approximately $32,000.

The Court also found, however, that the purchasers could not collect additional "punitive" damages (up to three times the actual damages) and attorneys fees under the state Consumer Protection Act. The Consumer Protection Act provides that "unfair or deceptive" business practices are unlawful. To establish a claim under Consumer Protection Act, you must prove (1) the defendant was guilty of unfair or deceptive business practices, (2) they occurred in trade or commerce, (3) they had an impact on the public interest, (4) the plaintiff suffered economic injury, and (5) the plaintiff's damages were caused by the dependant's unfair or deceptive acts.

The broker successfully argued that the buyers in this case did not show any adverse impact on the public. The only harm done was to the purchasers, not to the general public, so the Consumer Protection Act did not apply. Therefore, although the buyers could recover the cost of a drainage system from the broker, they could not also recover "punitive" damages or attorney fees, which are allowed under the Consumer Protection Act, but are not authorized in a lawsuit for fraud.

Still, the buyers got a new drainage system. Good news for the buyers, bad news for the brokers and ducks.