In a typical real estate sale agreement where a buyer makes an offer to purchase a home from a seller, the buyer is often afforded the customary right of inspection. A buyer will often retain a home inspector that will assist in making an informed decision about purchasing the home by performing a walk-through and identifying any potential issues. They will check the HVAC systems, plumbing and electrical systems, look for evidence of water intrusion, check the foundation and basement for structural issues, and otherwise identify any issues with floors, doors, windows, ceilings and walls. These inspections often produce a list of defects, some major and some minor, that give the buyer guidance on whether the purchase price should be renegotiated based on the flaws or walk away from the deal altogether.
What liability does the home inspector have to the homeowner if problems arise? What if a huge and costly problem with the house arises that should have been detected during the inspection but wasn’t? For example, a home inspector may fail to detect any evidence of water leakage into the house during the inspection, but the new homeowner discovers after the first heavy rain that his basement floods and it will now cost $20,000.00 to waterproof the structure. But for the inspector’s failure to detect water intrusion, the new homeowner would have passed on the purchase or negotiated a much lower sale price. The home inspector’s poor work just cost the new homeowner thousands of dollars that he did not intend to spend. Can he sue the home inspector to reimburse him for the loss?
Homebuyers should be aware that the vast majority of home inspection contracts have limited liability clauses that specify a liquidated damage amount in the event the home inspector acted negligently. This liquidated damage amount is often limited to the cost of the home inspection itself. Essentially, if a homeowner sues the home inspector and successfully proves that he was negligent in his duties, the most that the court can award to the homeowner is the agreed-upon liquidated damages plus the cost of the lawsuit. It doesn’t matter what the actual damages were, even if the cost of repairs was high or the amount paid to the attorney to pursue the lawsuit was great.
In Herbrandson v ALC Home Inspection Services, Inc., unpublished per curiam opinion of the Court of Appeals decided February 19, 2004 (Docket No. 244523), the plaintiff contracted a home inspector to prepare a report related to a house she wanted to buy. In the report, the inspector pointed out there were deck railings that were loose and some deck boards that needed replacing, but he found it to be “serviceable”. The plaintiff opted not to pursue any further negotiations on deck repairs with the sellers based on the report and purchased the home. After moving in, the plaintiff discovered that the deck was actually structurally unsafe and the grading around the foundation and soil was improper, leading to insect infestation and rotting. The home inspection contract provided that, in the event that the home inspector was negligent, the plaintiff would be entitled to a refund of the inspection price. The plaintiff sued the home inspector, alleging negligence and also alleging several violations of Michigan’s Consumer Protection Act (MCPA). The MCPA, if successfully, will award the plaintiff actual damages or $250.00 (whichever is greater) plus reasonable attorneys’ fees. After several days of trial, the judge found that the home inspector acted negligently but only awarded $330.00 (which covered the refund of the inspection price, the cost of filing suit, and the statutory attorney fee of $30.00).
The Michigan Court of Appeals upheld the verdict of the trial court and found that the liquidated damages clause was fair. The court also found that there were no violations of the MCPA that are applicable here. The MCPA attacks “[u]nfair, unconscionable or deceptive methods, acts or practices in the conduct of trade or commerce” that include intentional failing to reveal material facts, make false statements or knowingly making misrepresentations. Precedent has determined that violations of MCPA provisions should be construed with reference to the tort of fraud. Fraud requires that false statements or misrepresentations must be made with the defendant either knowing it was false or made recklessly without any knowledge of the truth. In this case, there was no evidence that the home inspector had knowledge of the defective condition in the deck, but rather he was negligent in failing to discover those defective conditions. Therefore, the MCPA does not apply here and the best the plaintiff can do was collect $330.00.
A home inspection contract can even lawfully limit the time period that the homeowner has to file suit against the home inspector. In Harpham v Big Moose Home Inspections Inc., unpublished per curiam opinion of the Court of Appeals decided October 13, 2015 (Docket No. 321970), plaintiffs sued their home inspector after discovering major defects in the home years after purchase that they felt should have been revealed. Plaintiffs bought their home in 2010 for $345,000.00 in reliance on the home inspection performed by defendants. Three years later, plaintiffs became aware of cracks in the interior drywall and unleveling of the floor that indicated “significant structural defects that existed at the time of inspection.” They claim if they knew about the defects, then they never would have bought the home. Plaintiffs sued the home inspector in 2014. The home inspector moved for dismissal, stating that the written agreement between the parties held “any legal action must be brought within one (1) years… from the date of the inspection or will be deemed waived and forever barred.” But for this written agreement, the normal statute of limitations would have allowed the plaintiffs to file suit. The trial court granted the dismissal on the basis that the lawsuit was barred by the written limitations. The Michigan Court of Appeals agreed with the trial court and held that parties to a contract may agree to a shortened limitations period for suits arising out of a breach of contract. In this case, the plaintiffs could not overcome the home inspector’s evidence that they signed the contract (whether they actually read it or not) so they were bound by its terms and barred from bringing suit.
This is another timeless lesson that you should always read before you sign.
The end result of suing many home inspectors in Michigan for negligence is that you get a refund of the inspection fee back. This is usually nowhere enough money to repair the substantial defects to the property or pay the attorney you hired to pursue the litigation. However, you may also have a claim against the real estate agents and the seller. The seller usually has a duty under Michigan’s Seller Disclosure Act to reveal all known defects of the property to the buyer. In the event the seller fails to make these disclosures, he or she can be sued for fraud and misrepresentation. Likewise, if the real estate agents (whether buyer or seller) make misrepresentations about the property in an effort to get the parties to the closing table (and split the commission), then they can be liable for breach of fiduciary duty, fraudulent concealment and misrepresentation. Before pursuing any legal action with your real estate issue, you should speak to a knowledgeable property lawyer to be apprised of all your rights.
If you have further questions about Michigan property law or need legal representation, then do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.