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Opening the Flood Gates

by Malte von Anrep

Malte von Anrep explores latent and patent defects in home buying situations.

Joe and Amy just bought their first home. A week after they moved in, a major rain storm hit the city. Next morning they discovered 3” of water in the basement rec room. It turns out there was a crack in the basement wall behind the furnace where the water poured in.

After the shock of the flood and the work in cleaning it up, they determined it would cost $20,000.00 to repair the crack in the wall, get rid of the mold that had developed, replace the carpet and repair the wood paneling in the rec room.

Off they went to see their lawyer in order to find out who pays. That is where they learned of “latent” and “patent” defects. They were told that a latent defect is “some fault which one would not expect an ordinary purchaser to discover during a routine inspection”. A patent defect is “something which an unsophisticated purchaser can discover on cursory inspection”.

Was the crack in the basement wall a latent (hidden) defect or a patent (easily seen) defect? This issue will be decided on a careful examination of the nature of the defect and how easily it could have been discovered.

If it is determined to be a patent (easily seen) defect, the rule is “let the buyer beware” and Joe and Amy have no recourse against their vendor – even if the vendor knew about it. If it was a latent (hidden) defect and the vendor did not know about it, again Joe and Amy have no recourse ….. “let the buyer beware”. However, if the vendor knew about such a defect and didn’t disclose it to Joe and Amy, the vendor will have to pay for the damages. A latent defect known to the vendor must be disclosed to a purchaser.

What steps could Joe and Amy have taken to avoid this dilemma?

  1. Insist that the real estate agent provide them with a copy of the vendor’s disclosure statement. This is a form the listing agent has the vendor complete and it is designed to disclose prior problems and other details of the house. If the vendor fills this form out incorrectly or dishonestly, in this case about the prior moisture problem in the basement, the vendor will be required to pay the damages.
  2. Hire a home inspector. For a few hundred dollars, you have the expertise of a professional who knows where to look for potential problems. The home inspector’s report will be a very important document in determining liability for a defect which is discovered after closing.
  3. Ask specific questions. Although the vendor has no obligation to volunteer information (except disclosure of known latent defects), the vendor cannot lie. If the vendor is specifically asked “have you ever had a moisture problem in the basement” and the vendor denies it but it can be proven that last year a clean up crew was hired to deal with a flooded basement, the vendor will be responsible to pay damages regardless of whether the defect was patent or latent.

So, if you are purchasing, shop with your eyes wide open and remember it is usually “buyer beware”. But, at the same time, if you are selling, you too must have your eyes wide open and be honest and forthright with potential purchasers so that the flood gates are not opened after the closing of a sale.

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