Non disclosure of known material defect for residential property

17 Replies

Not sure if this is right thread to post this question. Let me know if that is not.

This questions is related to residential property in california.  As per California laws, seller has to disclose any known material defect in the home before they sell it. What if they hide some facts which buyer comes to know about COE ? Can buyer go after it and ask for money to fix that defect ?

For example : Plumbing in the house is end of life and need to replace it. Result is low water pressure in faucets. One of pipe bursts right before sale and seller just repair that bursted pipe although plumbing company advise to change all piping of the house and provide estimates for same. Do seller has to disclose plumbing company's suggestion that plumbing of house need to be changed and associated cost to buyer in disclosure report.? 

if seller does not disclose it and buyer learns it later and get exact same estimates and suggestion from same plumbing company. Do buyer has a case for material defect not disclosed which seller knew and can ask for repairs ?

Thanks for taking time to answer my question.

I am not an attorney and old plumbing is not a known defect, particularly a bursting pipe. When I started investing here in NYC in a hot market, I concentrated on below market MFR's, and usually these are older structures priced a little below, but not by much. Back in the early 80's, I bought properties built in the 1930's.

Yes, I had plumbing and electrical issues that had to be updated. My plumber advised me that all plumbing should be replaced once the building is over 50 years old. A tenant, whose dad is a real estate investor said his dad does not invest in buildings over 20 years old for that very reason.

Since these issues are well known, to investors, plumbers, and related to the age of the building, you cannot blame the seller for selling you a building with 50 year old plumbing. And furthermore, the 50 year old building I bought in the 80's, I held it for 25 years, sold it for 3 times what I paid for it, and cash flowed from the beginning. In other words, I was pleased with it. But at the end, the aged plumbing had to be replaced, which involved ripping pipes out of the walls, and while I'm at it, update all the bathrooms. At the time replacing all the plumbing in the walls for the triplex, and new bathrooms will run me over $50K. 

Now, I thought about keeping the building, spending form $75K and up rehabbing the building throughout, including the plumbing. If someone tells me, you have to upgrade the plumbing before selling it to me, then it makes more sense to put the $75K in, keeping the building, instead of taking a $400K profit.

I priced it slightly below market, the seller had it inspected by an engineer. I never mentioned anything about the old pipes or what my plumber mentioned to me. The record shows it was built in 1939, and permits on file will show if the plumbing was updated. So it's up to the knowledgeable investor to know what he's looking for and dig the records up. He can even ask if the plumbing was updated. So it's not my job to hold the buyer's hand.

It's sounds line one of these cases I hear on court TV, like Judge Judy. Someone buys a 195,000 mile 20 year old car complains about problems a month after he bought the car, and present as evidence the seller even had something fixed before he sold it but never mentioned it. Judge Judy would look at the buyer, yells at him, and says, "what do you expect from a 195,000 mile 20 year old car"?

I would agree with Frank @Anant Garg .  If you are purchasing an old home and during inspection you notice the plumbing is original or older, why would you try to put the onus upon the seller?  Plumbers make $$ replacing plumbing systems.  Most recommend you update but these systems can last a long time.  If you open walls, replace the lines.  Hopefully PEX will last 100 years plus. 

I agree with the posts above. Every time I have had an inspection on an older plumbing system they recommend to replace it. That is them trying to make money.

Thanks @Frank Chin @Darren Sager @Jeff Brower for taking time to answer my question. I understand your point and in some way it is obvious too. But here is what i think:

It might be easy and obvious for seasonal investor to find out these defects and estimate the cost involved. But for first time buyer it might not get attention and not have an idea about cost related. He might get tricked.

I read it somewhere that idea behind the fact that seller has to disclose what he knows about the property is to bring forth any defect which can impact condition and value of the property. This helps to give the clear picture to the buyer and he can evaluate accordingly.

For older homes, most of the things will be at end of life. But it still wouldnt change the fact that seller need to disclose what they know about the property. There might be some obvious things and some non obvious. I could not find any requirement where it says only non obvious things need to stated by seller in seller disclosure. 

Not sure if people think on similar lines or have different things in practise. Am i living in too much idealistic world ?

Despite the plumbing being old, it was still functioning as intended. Merely being old isn't a defect. You can get into trouble speculating upon the remaining useful life of a component. Most water heaters last 8-10 years. I have seen some last over 20 years. A person with little knowledge of houses should employ a licensed home inspector during the buying process. A home inspector will not call a old plumbing system dangerous but will point out leaks and other components that are not properly functioning. You can ask the inspector his opinion of the plumbing but he won't be specific as to your house but he will educate you on older systems.

Yes, you can bring suit if you believe a defect was not properly disclosed. Winning is another matter.

Originally posted by @Anant Garg :

Thanks @Frank Chin @Darren Sager @Jeff Brower for taking time to answer my question. I understand your point and in some way it is obvious too. But here is what i think:

It might be easy and obvious for seasonal investor to find out these defects and estimate the cost involved. But for first time buyer it might not get attention and not have an idea about cost related. He might get tricked.

I read it somewhere that idea behind the fact that seller has to disclose what he knows about the property is to bring forth any defect which can impact condition and value of the property. This helps to give the clear picture to the buyer and he can evaluate accordingly.

For older homes, most of the things will be at end of life. But it still wouldnt change the fact that seller need to disclose what they know about the property. There might be some obvious things and some non obvious. I could not find any requirement where it says only non obvious things need to stated by seller in seller disclosure. 

Not sure if people think on similar lines or have different things in practise. Am i living in too much idealistic world ?

 That's why it is important to have the house inspected by a bona fide inspectors. There are also mandated requirements and disclosures on such things as lead paint. But what you're talking about is something altogether different.

Here's an article that touches on the issue that concern you. See: Material defects An example given is if a furnace has reached the end of it's life, still in good operating order, it is not considered a material defect. But it might go a week before closing needing repairs, In my mind, pipe in walls, electrical wiring, all have useful lives and many things still goes strong years beyond. In all the years that I dealt in real estate, as buyer, and as seller, no one has said to me "you have to list every last item in your house, it's useful life, and how many years has it exceeded". It's not only burdensome but ridiculous. Most of the time, in hot markets such as New York, people offer over asking anyway. If someone starts with me on the age of my plumbing, my answer would be "I already got interested parties".

The way I look at it, when you buy 50 year or over property, you would have to assume some rehabbing is needed particularly if you want a property in good presentable state. 

A seller of an older property has a perfect answer to your question ".. seller has to disclose what he knows about the property is to bring forth any defect which can impact condition and value of the property". I had an inspection done, and I found a few things wrong, like the house needing a new roof,  and then asked him what other things that are wrong, something along the lines of what you're thinking, things that exceeded it's useful life". His attorney explained to him what I was talking about, because with these two single guys who owned it, who goes out partying every night (according to the agent at the contract signing) they're the last people on earth that know the useful life of anything, His lawyer explained to him I want something in the contract regarding it.

So one of the guys said "if that's what he's talking about, write in everything in the house is beyond it's useful life, if that's what he wants, and would that be enough?". His attorney nodded. The real estate agent thought it was totally ridiculous and I thought so too.

We wound up signing the P&S contract, without the clause, owned the house for over 20 years, made over $600K profit in its sale, and only spend several thousand dollars upgrading the electrical system. We thought the plumbing needed upgrading, but surprisingly, it lasted till the day I sold it. And my buyer, a flipper, didn't make a peep about the age of the plumbing.

@Anant Garg a homeowner selling a property is required to disclose any defects. However in your example, the seller had a plumber (who stands to make a lot of money replacing the plumbing) fix a leak and "recommend" replacing all of the homes plumbing. Whether the buyer is an investor who hasn't 500 houses or a new buyer who has never been in a house before wouldn't make a difference. The buyer was buying the house he saw/agreed to, old plumbing included. A leak occurred and the seller was obligated to fix it back to the condition it was before. He has no obligation to replumb the house or pass along a plumbers (again who stands to make a lot of money on his recommendation) recommendation. He also isn't required to give the buyer any money if they have a plumber come and recommend a replumb. If it were that easy everyone would go after sellers for everything after the sale.

Old is not a defect .    If it was my wife would have traded me in a few years ago 

Cases like these are what separate the good guys from the bad guys. I have no doubt that the buyer in this situation could likely bully the seller out of a few thousand dollars over this issue. But it is not really legitimate issue.  Arguing over whether the plumbing was beyond its useful life and whether this was written down in some disclosure would be really ridiculous

If I were the seller and someone tried to do this to me I would harbour serious ill will towards them because I would consider it an attempt to shake me down not an attempt to receive something they are justly owed.

I think having a good reputation among the community of Real Estate Investors is very valuable. You could occasionally Shake someone down by threatening to sue them over something like this. You will lose more in the long-term because other people will be reluctant to do business with you.

I'm all about being forceful and aggressive when you're standing up for yourself. This doesn't sound like a situation where that would apply.

Also, many people have correctly identified that the plumber who recommended all the pipes be replaced has a financial conflict of interest. One should always beware of these conflicts of interest. It's the easiest thing in the world to convince yourself that what's good for you is good for everyone. 

A seller's disclosure isn't worth the paper it's printed on. That's not me being cynical, or saying that sellers lie, it's just the truth.

A while back, I was talking to a potential seller, who happened to be a little bit older. I noticed the roof had some curling shingles around the edges, so I asked her if she knew how old it was. She told me it was replaced (which I took to mean a full tear-off) 2-3 years ago by 'Smith' Roofing. Since I happen to know the owner of that company, and thought the shingles looked older than that from the ground, I gave the roofer a call. He had to dig back a bit, but found out they had done the job 7 years ago, and it wasn't a tear-off when they did it, meaning the next one would have to be, and probably sooner than later (in Western New York.) 

Now, I could assume Mrs. Seller was lying to me, or I could assume she just forgot when she had it done. I find that as I get older, it becomes a lot more likely that I would make the same mistake concerning the passage of time. The same came be said of water heaters and furnaces (check the dates on them!) and everything else concerning the house. 

The idea of using an inspector is a good one, but it isn't foolproof either. The first house I ever bought, I had the inspection done by a local professional outfit that all the local realtors recommended. The inspector missed a couple of huge issues, which wound up costing me a lot of extra money, and worse, time. 

Somewhere down the line, the previous owners, strapped for cash, knew the roof needed replacement. There was already a third layer on, which may have been acceptable at the time, but was not allowed by the time they went to replace it. The roofer they hired, rather than do the tear-off (which they couldn't afford) nailed new drip edge on top of the third layer of shingles, all the way around the roof, then put a 4th layer on, effectively hiding the 3 layers of shingle underneath. The next roofer to come along saw drip edge and a single layer of shingles, so he put on another layer of shingles, meaning that when I bought the house it had 5 layers of shingles on it, which were all completely shot. Even worse, walking on the roof felt solid, because apparently 5 layers of shingles nailed together can hide some pretty serious structural issues. 

So when the roof finally came off, I not only had 5 layers of shingles on both the house and attached garage (21 square in total) I wound up having to re-deck the entire house, and fix a cracked roof truss.

Thank God I did it myself with some hired help, or I would have been looking at a $13,000-$15,000 job, easy.

Additionally, the house was originally wired with Aluminum wire, which may or may not be the worst thing in the world, depending on the electrician you talk to. One of the previous owners decided to 'fix' this by rewiring the house. Unfortunately, they ran 14/2 wire from every outlet in a room to a (not to code) junction box above the rooms, wire-nutted everything together in the box, and cut off all of the ground wires both in the outlet boxes and junction boxes. So nothing in the entire house was grounded properly, meaning I had to rewire the entire house. 

Both of these issues were missed by the inspector, and may have been missed by many inspectors, but will never be missed by me again - that's for sure. And the previous owners may, or may not, have known about any or all of them - but none of it was on the disclosure, nor would I expect it to be. 

Even if they knew, proving it is a whole 'nother deal. 

Jason, you may have gotten a hold of an inspector that realtors use for "troubled properties". Some inspectors are more thorough than others and the agents know that.

that's must one plumbers opinion.. ... as a buyer you can't play the I did not know card.. to much info if someone just puts a little effort into a google search..

Old plumbing is not a material defect. Non functioning plumbing would be.

@Jason V.    I could see an inspector potentially missing the roof issue (mine didn't get on the roof) -- but that electric issue seems nearly impossible to miss.  Just wondering if you spoke to the inspector after concerning that issue in particular? I know the paperwork I signed regarding my inspection essentially releases them of any and all liability, but wow, that's bad. How do you miss that there wasn't any grounding. Along with my inspection, there is also another Fire Marshal inspection where I'm assuming they will look even more closely at electric wiring and grounding issues, hopefully that can prevent a similar issue! At least you've dealt with the roof and electric issues and know there won't be any issues in the future.

Originally posted by @Megan Phillips :

@Jason V.   I could see an inspector potentially missing the roof issue (mine didn't get on the roof) -- but that electric issue seems nearly impossible to miss.  Just wondering if you spoke to the inspector after concerning that issue in particular? I know the paperwork I signed regarding my inspection essentially releases them of any and all liability, but wow, that's bad. How do you miss that there wasn't any grounding. Along with my inspection, there is also another Fire Marshal inspection where I'm assuming they will look even more closely at electric wiring and grounding issues, hopefully that can prevent a similar issue! At least you've dealt with the roof and electric issues and know there won't be any issues in the future.

I honestly never even tried to contact the inspection company - I knew they were never going to accept any liability or responsibility for it, and they knew as well as I did that it shouldn't have been missed. That was also at a time where I was much more in the "screw it, I'll just fix it myself" mindset. 

I just wrote it off as a learning experience, and now I know to do my own inspection in addition to the professional inspections I have done. 

@Anant Garg I'm a California real estate attorney, broker, and investor.  I will provide you some general advice about California, but not your case specifically.  While I respect the comments of those above, please realize that this is California, which has a large number of disclosures required by statute, case law, and contract.  So, any comparisons to other states or how other states do it are frankly inapplicable.  Yes, we Californians are crazy and we know it, but you can't beat 80 degrees in the "dead of winter."

I'm guessing from your post that you purchased an SFR, not a multi-family or condo. STATUTES: California statutes impose certain duties of disclosure in the Transfer Disclosure Statement, through which a seller can disclose any issues with the plumbing or any material defects. CASE LAW: California case law imposes a duty to disclose known material defects and a duty on agent to conduct a reasonable visual inspection of the property and report the findings of their inspection to the buyer. CONTRACT: Probably 95%+ of SFR purchase transactions in California utilize the California Association of Realtors Residential Purchase Agreement (RPA). The RPA imposes certain additional disclosures (in addition to statutory requirements) for a Seller Property Questionnaire or an Exempt Seller Disclosure. Either of these documents would include questions about the condition of the plumbing. Depending on the version, the RPA may have imposed a continuing duty of disclosure on the seller throughout the transaction.

If issues were disclosed to you during the transaction or if your property inspector reported these items to you, then the issues were disclosed or made known to you during the transaction when you could have negotiated a price reduction or credit or cancelled the transaction.  However, if the seller did not disclose these issues or purposely covered up these issues, you may have recourse against the seller.  You can check out this article to which I contributed several quotes for more information: www.realtor.com/advice/buy/sue-false-information-given-sellers/

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