Update on Real Estate Litigation
October 28th, 2008 | Published in real estate | 2 Comments
I don’t think I have written about this previously, as I didn’t have my blog at the time I bought my last piece of real estate. Anyway, in May 2007 I purchased a home to live in. I moved in and started renovating the bathroom (there was linoleum on the walls–this should have been a tip off something was wrong, after all who does that?). All I had planned to do was put down tile on the floor and in the shower and remove the linoleum, skim coat and paint the walls.
However, when we started doing the work we uncovered water leaking in the wall. So much so it was puddling on the floor. This lead us to uncover lots of water damage–the majority of it from a badly installed roof. I re-roofed the house, patched up the walls, and decided to pursue litigation against the sellers as they “flipped” the house and covered up a lot of the damage (and didn’t disclose the damage). Lawsuits take a long time, and this one has basically been languishing (there is an 18 month wait for a trail date in this county). Well it is starting to move forward and at this point I am wondering if I even want to continue with it….
Part of me does want to continue with litigation because I feel like the house flippers behaved unethically and think they should have to pay for some of the repairs (in addition to the fact I wouldn’t have purchased the house had I had the chance to inspect the extent of the damage). Plus, it affects the home’s value, since now I have to disclose the water damage when I got to sell the home. The other part of me just wants to cut my losses and move on (since I have fixed a lot of the damage at this point and like will fix more of it before I ever go to sell it). It is a big dilemma for me right now. I am talking with my lawyer this afternoon to help make some decisions on what to do.
On a side note if you ever buy a real estate you should always make sure you get the expanded title insurance policy. It protects you from fraud, among other things, and with it you can (a) make sure the title company covers any losses and (b) they get THEIR lawyers involved as well, and they’re usually the flesh-eating variety so you get satisfaction from the seller pretty quickly. If I had done this I wouldn’t have had to hire my own legal counsel and go after the sellers myself.
Oh and if you see linoleum on the walls, run away.
(And to answer the questions I have received so far, yes, I had a thorough inspection–I believe the inspector did a good job–like I said a lot of the damage had been intentionally covered up. Now it is just a matter of proving it in court….)
October 28th, 2008 at 7:51 pm (#)
Tough choices. Following up on litigation can be very expensive — and you may not win (really hard to *prove* that the flippers knew about the water problem and should have disclosed it). Even if you win, you then have to collect – I’ve been in that situation (still have a bench warrant active for someone I got a judgment about over 10 years ago…).
Suggestion – test the waters with a small claims court case – judgments are limited to $10k (or at least they were last time I did this). No legal counsel in front of the judge – you represent yourself. Given what you wrote you should be able to prove your case easily (most times the defendant doesn’t show up and you win by default). You can then place a lien on other property they have or garnish wages. point is you can see if there is the possibility of collecting. Worst case you have your day in court; medium-day you get $10k out of it; Best-case you get a settlement and more cash.
Let me know how you get on.
Col
October 28th, 2008 at 9:11 pm (#)
Yeah I hired a lawyer over a year and half ago and the trial is pending….
I have really had mixed luck with my real estate investments (although it hasn’t stopped me since I am planing on buying some multi-family property soon). It certainly hasn’t been a slam dunk (but neither has my stock market investments)-I think I still have a lot to learn.
As for the lawsuit we are doing some more research and are hoping to settle, although if it looks like it will be a bunch of work (read a bunch of $$) I may just throw in the towel–especially since I have already paid to fix the problems and there are tenants happily living in the home as we speak. You see sine I am suing someone who “flipped” homes they had a lot of money tied up in real estate. When I filed the lawsuit they owned over 50 properties–of course now most of those have likely lost value or are highly leveraged–so even if I could collect there may not be anything there. I should have a better grasp on these things soon and make a decision at that point.
Thanks for the insight though!