Court ruling may help sellers who fail to disclose a home's problems
A controversial ruling by an appellate court in South Carolina could have a major impact on how home sales are made across the nation.
Q. I agreed to purchase a house last November. The report prepared by the inspector noted that there were water stains on the ceiling above the kitchen, but I closed on the deal anyway. It recently rained very hard, and water leaked from the ceiling and damaged the floor. Can I sue the seller or either of the agents for failing to tell me about the problem?
A. You could sue, but you likely would not win.
A lawsuit similar to the one that you're contemplating was decided in a seller's favor by the South Carolina Court of Appeals last year. In the case, McLaughlin v. Williams, the buyer's home-inspection report noted a high level of moisture and mold at the property. The seller's disclosure form did not mention any water damage, but the buyer nonetheless completed the transaction.
The buyer later sued the seller, the seller's agent and his own broker for misrepresentation after learning that the water damage had caused major structural problems. But the appellate judge upheld a lower court's ruling, which noted that the buyer had received an inspection report alerting him of the mold even though the seller didn't tell him about it, thus negating the claims against the seller and brokers alike for misrepresenting the physical condition of the house.
The fact that the seller and two agents who were involved in the sale failed to disclose the water damage was irrelevant, the appellate court added, because the buyer decided to go forward with the purchase even though the inspector's report of mold and water damage should have prompted the buyer to have the place also checked by a plumber or similar expert.
Although the appellate court's ruling in South Carolina technically applies only in the Palmetto State, it can be cited as legal grounds for sellers and real estate agents to fend off lawsuits across the nation. Talk to an attorney for details.
Q. What is a "dry mortgage?"
A. It's a slang term for a nonrecourse loan.
If you have a nonrecourse mortgage and can no longer make the payments, the lender can foreclose on your home but cannot "bleed you dry" by garnishing your paycheck or seizing any of your other assets if the eventual foreclosure sale nets a price that's less than the outstanding balance of the home loan itself. That's a lot different from a "recourse" loan, which permits a lender to tap your pay or even grab personal items to make up for the shortfall in sale proceeds.
Q. What's the difference between a Chapter 7 bankruptcy filing and a Chapter 13 filing?
A. Either will hurt your credit record, but a Chapter 13 filing will leave less of a stain on your credit report than a Chapter 7 filing would.
The difference is that, under a Chapter 13 filing, you agree to pay the money back to the lenders you owe over a longer amount of time. If you instead file under Chapter 7 of the U.S. Bankruptcy Code, you will be asking the judge to wipe away your debt completely.
A Chapter 7 filing will likely stay on your credit record for 10 years because you would not be paying any money to your current lenders. A Chapter 13 filing usually stays for only seven years because the debts will be paid back.
Q. My son divorced his wife in 2005, and she died in a traffic accident three months ago. My son now wants to sell the house that they owned together and has already found a buyer, but the new lender won't issue a loan until her name is removed from the title to the property. What can be done?
A. It largely depends on how your son took title to the home with his late ex-wife.
If her name is still on the title, the bank has no legal authority to remove it. That means that your son may need to present the issue to probate court, where a judge could take a year or two (and charge thousands of dollars in court costs) to remove her name from the deed.
However, if your son and late daughter-in-law held title to the property as "joint tenants" with the right of survivorship, her financial interest in the home should automatically pass to your son without going through long probate hearings. Your son may also be able to erase his late wife's name from the title by filing a certified copy of her death and her affidavit of survivorship with the county recorder.
• For a copy of the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 2960, Culver City, CA 90231-2960
© 2009, Cowles Syndicate Inc.