Seller sets seeds for future lawsuit

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By Don Dunning | May 23, 2008

Got a call the other day from a fellow Realtor®. He presented to me a scenario with all the aspects of a future lawsuit.

His broker, knowing I have been a real estate expert witness in numerous lawsuits, suggested he get my advice about a property this agent wanted to list. The home has an “in-law,” built without permits, unknown to the city, and the unit is rented to a tenant with a written lease.

The question was how I would handle disclosures to prospective buyers. I told him my concerns:

As the in-law was created without the city’s blessing, it might not meet regulations relating to “granny” units, including sufficient off street parking. The city could, at any time, compel the seller — or the new owner — to remove the kitchen and cease renting it. Usually, this means having the owner remove the stove. In addition, the city could insist that walls be opened to check that plumbing and electrical were properly installed. The result could be a possible legal action by the buyer against the seller for loss of value. (for more, read my past, published articles “Outlaw In-laws, Part 1” and “Part 2)“.

Even more importantly, it is unknown whether there are any health and/or safety issues related to the unit. In particular, if a room is being used for sleeping, and it is located next to or near a garage, furnace or hot water heater, there is the risk of poisonous gases. In addition, there is a question of ingress and egress of both the tenant and the fire department in case of a fire. (for more information, read “What is a Bedroom?“).

The city in question has rent control and an eviction ordinance. Each has complex rules that must be followed. If someone purchased the property and agreed to inherit the tenant, what would happen if the tenant refused to vacate at the end of his lease?

I told the agent that detailed disclosures should be provided to the buyer regarding the above. He explained that he had covered most of my points with the seller, who refused to allow the necessary disclosures. The seller was willing to make a simple statement that there was an in-law done without permit, but he felt saying any more would “scare buyers away.”

His broker had asked the agent to call me because he, the broker, does not take listings without proper disclosures. After our conversation, the agent and I agreed that it would be a good idea for him to call the seller again and, based upon my substantiation of his position, try to convince him that full disclosure was required by law and in his best interests.

The seller reiterated he would not allow full disclosure and would find an agent to do it his way. There is no doubt that agent will be found. This is exactly the type of case I am often called to give my opinion on as a real estate expert witness. That could be years from now. Meanwhile, let the buyer beware.