A recent Illinois Appellate Court decision underscores the difficulties homeowners might encounter in a sale where they repaired water damage to their home during the time they owned the home, if the source of the water damage is not identified and corrected. In Poundstone v. Cook, several months after closing, a buyer discovered mold and wood rot in a finished basement after a significant rainstorm. When the contractor he hired to repair the damage discovered evidence of prior leaks and that the source of the leaks had not been corrected, the buyer filed suit against the seller, with claims under the Real Estate Property Disclosure Act and for common law fraud. But the seller contended that he was only aware of one water incident and after that had the damage repaired and never experienced another issue.
Under the Real Estate Property Disclosure Act, a seller is only liable for those material defects that they are aware of. In addition, even if a Seller answers a question on the disclosure form incorrectly claiming that there was no defect, if the error was based upon a reasonable belief that the defect had been repaired or corrected, the Seller is not liable for the error. Section 25(a) of the Act states as follows:
The seller is not liable for any error, inaccuracy, or omission of any information delivered pursuant to this Act if (i) the seller had no knowledge of the error, inaccuracy, or omission, (ii) the error, inaccuracy, or omission was based on a reasonable belief that a material defect of other matter not disclosed had been corrected, or (iii) the error, inaccuracy, or omission was based on information provided by a public agency or by a licensed engineer, land surveyor, structural pest control operator, or by a contractor about matters within the scope of the contractor’s occupation and the seller had no knowledge of the error, inaccuracy, or omission. 765 ILCS 77/25(a).
Moreover, subsection (c) states that a Seller is not obligated to make any special investigation or inspection to complete the disclosure statement. 765 ILCS 77/25(c).
But those provisions did not help the Seller in the Poundstone case. The Buyer was awarded $104,000 in damages and $30,559.18 in attorney’s fees. The trial court concluded that the prior leaks required the Seller to identify the source of the leaks, and not just repair the part of the basement that had been damaged. Although the trial court (based on the nature of the watermarks and rot) likely did not believe the Defendant’s claim that he was unaware of other defects, the appellate court’s opinion seems to carve out a new standard for disclosure of prior water damage; namely that in repairing damage from any leak, if the source of the leak is not identified and corrected, the failure to disclose the prior leak and damage could be held to violate the disclosure requirements of the Act. As we have pointed out in a prior blog, those types of mistakes or errors on the Disclosure Form could prove very costly.
However, the Poundstone case also provides hope to Buyers who might discover water damage in their home after the closing. The ruling in Poundstone highlights that just because the Seller indicates that they were not aware of any leaks or damage and believed that the prior damage had been repaired, it is not the end of the story for a Buyer facing costly repairs to address and correct the real source of the leak. If you or someone you know has water damage in a home you recently purchased, you would be wise to consult an experienced attorney to assess your options.
Storm & Piscopo, P.C.
Our attorneys have a strong background in real estate litigation and transactions. We have and continue to represent buyers and sellers in lawsuits involving construction and other material defects and alleged failures to disclose those defects. We also handle residential and commercial closings, conducting due diligence so that our clients can rest assured that their purchase is sound.
