July 2013 Bar Bulletin
 
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July 2013 Bar Bulletin

Trust and the Real Estate Transaction

By Mike Spence

 

A recent case from Division I of the Court of Appeals makes it crystal clear that buyers of residential real property can no longer blindly trust the seller's disclosures in an RCW ch. 64.06 Seller Disclosure Statement, known widely as "Form 17." The case1 is the latest in a series signaling a return to the legal principle of caveat emptor in residential real estate transactions.

By the court's own admission, the facts of Douglas v. Visser are "egregious." Terry Visser, a real estate broker, and his wife Diane purchased a property in Blaine in 2005 with the intent of renovating and renting it. They ran into financial trouble and decided to "cheap out" on the repairs and sell the property.

When their laborer told them that the floor joists were too soft to screw the flooring down, Visser told him to somehow "find a way to attach the wood." When he told them that the wood underneath the bellyband was rotted, Visser instructed him to "cover it with trim … cover it in caulking, use a bunch of nails, paint it and seal it." The laborer did as told.

Visser then put the property on the market and received an offer to purchase it from Canadians Nigel and Kathleen Douglas. The Douglases were given a Seller Disclosure Statement with either no answer or the "don't know" box checked for many of the questions. The Douglases sent Visser a series of follow-up questions and requested a copy of the Vissers' pre-purchase inspection report. Visser submitted handwritten responses to the questions, which the Douglases considered inadequate. The inspection report was never provided.

The Douglases next had their own inspection. Their inspector discovered a "small area of rot and decay near the roof line" and a "rotted sill plate." He told the Douglases that these were not structural problems, but that they should be repaired if conditions degraded rapidly. The Douglases did nothing further regarding the physical condition of the house and the transaction closed.

Shortly afterward, the Douglases discovered the extent of the problems and called the inspector back. When he removed a ceiling tile, insulation and water came down from behind it. Alarmed, the Douglases hired a mold specialist, who told them that it would be cheaper to demolish the house and rebuild than to repair the existing structure. Two subsequent inspections revealed that Visser had knowingly concealed mold and rotted wood conditions. The Douglases sued the Vissers for fraudulent concealment, negligent misrepresentation, violations of the Consumer Protection Act, breach of contract and breach of Visser's duties as a real estate broker.

Given this level of deception and Visser's "egregious" conduct, one would expect that the court would easily rule in favor of the Douglases. And that's what happened at the trial court. However, the Court of Appeals reversed and held in favor of Visser, stunning nearly everybody in the real estate and legal communities.

To understand why, a little history is necessary.


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