Those Pesky Termites Aren’t Just in Casebooks

Here is a Q&A about termites from the Washington Post’s “Housing Counsel” column. The response is written by Washington lawyer Benny L. Kass.  It might ring home for some contract profs and students:

Q: Three weeks ago, I signed a contract to buy a single-familyhouse. I had the house inspected, and the inspector advised me to get atermite inspection. The termite company determined that although therewere no active termites in the house, there was a lot of damage in theattic and in the basement.

When I discussed these issueswith the sellers, they told me that the damage was in the house whenthey bought it and that they were not going to do anything about it now.

I don’t think this is fair, and I don’t want to have to  spend a lot of money correcting this damage. What should I do?

A:  Howmuch will it cost to repair the damage? The first thing you should dois get two estimates from licensed contractors. Do not rely on theestimate provided by the termite company, because generally thesecompanies are not in the business of making repairs.

Then, you should read two documents: the seller disclosure statement and your sales contract.

Yoursellers clearly knew about the termite damage when they entered intothe sales contract. Was this disclosed to you? In some jurisdictions,sellers can disclose conditions in the property or tell you that theyare not going to disclose and that you are on your own regarding thehouse. This latter position is called a “disclaimer,” although statesstill require certain things to be disclosed, such a latent defects.

Ifyour sellers did not disclaim disclosure, then you have the absoluteright to insist that they correct the termite damage or give you a cashcredit for the amount of the repairs when you go to settlement.

Yoursales contract may also help you. If you were using the Regional SalesContract that is commonly used in the Washington area, look atparagraph 13, titled “Termite Inspection.” This paragraph states that”any . . . structural repairs identified in the inspection report willbe at seller’s expense.”

Now you have to determine if the damagethat your termite inspector found was “structural.” That is why it isimportant to have a licensed contractor give you an estimate before youapproach the seller. Furthermore, if the damage is extensive and willcost a lot of money to repair, you may have to bring in a structuralengineer to assist you in this determination.

You have indicatedthat settlement is scheduled for the end of this month. Clearly, you donot have a lot of time to do your homework. I suggest that you approachthe sellers with these alternative proposals:

They can give you a cash credit at settlement in an amount that you negotiate.

You can postpone the settlement for a reasonable time so that thesellers and you can get all the information needed to make intelligentand informed decisions as to the scope of the damage.

You cango to settlement and have the sellers escrow a sum of money from thesale proceeds. The amount should be based on the estimates that youobtained. The settlement attorney will be instructed to pay thecontractor when the work has been completed to your satisfaction, andany balance remaining will be returned to the sellers.

What ifthe sellers remain obstinate and refuse to accept any of theseproposals? You then have a business decision to make. If you go toclosing without resolving the issues, in most cases you will not loseyour right to challenge the seller afterward. Look at paragraph 34 ofthe Regional Sales Contract, titled “Entire Agreement.” This is knownin the law as a “non-merger” clause. It says, “The provisions of thiscontract will survive delivery of the deed and will not be mergedtherein.”

The general rule of law used to be that if you acceptedthe deed from the seller, you lost all your rights against the seller,even if there was a clear breach of the contract on the part of theseller. But the courts have decided that this is unfair, and manystates have abolished this concept. The Regional Sales Contractreinforces this by making it clear that contract obligations andpromises will not be lost just because settlement takes place.

Asa practical matter, however, after settlement, you have lost yourleverage. You will have to sue your sellers, which is time-consuming,potentially expensive and always uncertain.

In fact, your sellersmay have moved to the other side of the country, if not to some otherpart of the world. Even if you win in court, collection could bedifficult, so before you go to settlement, make your best effort toreach an amicable resolution.

[Meredith R. Miller]