'As is' not a protection from lawsuits

Many sellers today wrongly think that offering their home "as is" automatically will protect them from lawsuits by their buyers.

Q. We purchased a home "as is" in August, and obtained a permit from our city to expand the master bedroom in September. When the city inspector came out to approve the bedroom's new foundation last month, he noticed that our garage -- which the previous owner had converted to a home office -- was not done according to the city's building code. Now the city has suspended our permit for the half-finished bedroom and will not renew it until we bring the garage up to code, which will cost about $13,000. The sellers never told us that the garage conversion was done without a permit and did not meet the building code. What can we do? Can we sue the sellers for the cost of the work that we will have to pay for the garage, even though we bought the home "as is"?

A. Yes, you can sue the sellers, and probably win, even though you purchased the home as is.

Most real estate sales contracts today state that the property is being sold as is, which basically means that the seller won't make any improvements to close the deal. That's fair, because sellers shouldn't be required to make minor changes, such as replacing a worn carpet or repainting scuffed walls, unless they agree to do it as part of the sale.

Illegally converting a garage to a home office, however, is an entirely different matter. The sellers apparently did the work on their own volition, without getting a building permit or perhaps even checking with the city to see if the conversion would be OK. They then apparently didn't disclose this information when you agreed to purchase the house in August, so you've got a good case to sue for the cost of bringing the conversion up to the local building code's standards as well as any permits that may be required.

You might even have a case against the home inspector you (hopefully) hired to look at the property before you bought it. Inspectors generally aren't expected to know what the local building codes are, but they have a duty to discover unsafe conditions. That means that if the inspector overlooked bad wiring in the garage conversion or a roof that's obviously prone to leak, you have the right to file a claim against the insurer who provides the inspector's insurance policy.

Q. How long can a tax lien stay on someone's credit report?

A. By law, a tax lien can stay on a consumer's credit report for up to 15 years -- more than twice the length of many bankruptcies. The government wants its money, and it doesn't mind messing with a taxpayer's long-term credit history to get it.

Q. My husband and I started buying fixer-upper properties a few years ago, repainting the homes and making some basic repairs and then reselling or renting them. We have made a lot of money doing this and have learned all sorts of ways to keep our expenses low. The only thing we can't seem to save money on is title insurance. Do you have any suggestions?

A. Yes. All buyers should always call at least two or three title-insurance companies for quotes before closing a real estate transaction, whether they plan to live in the home themselves or rent it to tenants. Doing so can save hundreds or even thousands of dollars, as long as the property is not located in one of the handful of states where title-insurance costs are set by government regulators rather than by free-market competition.

Many real estate "flippers" -- those who plan to resell within a year or so -- can reap huge savings if they qualify for a low-cost "binder title rate." Such programs are available in more than half of the 50 states, but title-insurance companies don't advertise them much because they typically don't yield as much profit for the insurer as a standard policy does.

If your state allows companies to offer binder title rates, you initially will pay about 10 percent more than you would if you purchased a standard policy. But as long as you resell the property within a year or two, the title-insurance company will get to keep only about 10 percent of the money you paid for the policy when you first took it out and will have to refund all of the rest -- a savings of about 90 percent on your title premiums.

Also remember that current homeowners who purchased or refinanced their house in the past couple of years and are now seeking a new loan because rates have dropped may qualify for a different type of discount -- commonly called a "reissue rate" -- that can trim hundreds off their title-insurance bill.

Such discounts are offered in most states because the title insurer only has to search ownership records back a year or two, to the date when the last policy was issued, rather than reviewing the property's entire chain of ownership from the time it was initially built.

© 2007, Cowles Syndicate Inc.