It's Not Fraud Just Because You Don't Like It!

Good afternoon Blogosphere!  Happy Fall from Levin Law Ltd. presenting you with News You Can Use, about all things real estate.  Here is one from my phone logs... just in today:

I get a call from a guy... we'll call him Steve.  Steve and his wife purchased a home more than 6 years ago through an estate sale.  Two women had inherited the home when their parents passed, and Steve and Co. were interested to purchase it.  He conducted an inspection, all looked fine, so they completed the sale.

Fast forward to 2014, and a City of Chicago building code inspector dropped by with his clipboard, and all of a sudden Steve finds himself facing a code violation for a "dormer" issue that he was previously unaware of.  What does he do?  He commences some kind of investigation involving the realtors, seller, his old lawyer and eventually calls me - new counsel - to try to see who he can sue for fraud, because he was never told the dormers were installed without a permit.

What?  Sounds simple, right?  Someone must have lied.  Someone must have conveniently forgotten to tell him during his escrow period that work was done and that the original owners never had a permit to do it.  Someone must pay.  Right?

Well... Maybe Not So Simple.

See, what I had to explain to Steve was that when he purchased a home, and he hired an inspector, a lawyer and a realtor - that NONE of their jobs includes asking the question of whether a permit was obtained for an addition in 1960-whatever.  IT simply isn't part of our jobs.  I explained that realtors introduce buyers and sellers.  End of story.  I explained that inspectors find current broken items.  End of Story.  I explained that for the meager money the real estate lawyer makes on the deal, their job is to examine the contract, examine the financial papers, and make sure title is good.  End of Story.  Steve was listening.

I went on to explain that regardless of a consumer's belief that a real estate lawyer should inform themselves and investigate every potential scenario in a real estate transaction - they aren't actually paid to do that - nor are they paid enough to agree to that.  He was like... "uh what?"  Yep.  What is right.

Specifically - a real estate lawyer does NOT investigate the construction history of a parcel of real estate from the  beginning of time to today, JUST BECAUSE YOU ARE BUYING IT.  What a real estate lawyer does, is to open a file and monitor deadlines, they review and negotiate the contract, they review and negotiate inspection items, and they oversee the financing documents to ensure that what you are agreeing to pay the bank is what the paperwork provides.  They are expected to ensure that the buyer receives good and merchantable title and that the seller sells the property.  What they ARE NOT DOING is to go back into the seller's history to be sure that every construction project ever done was done right, done with a permit, or done under the then-current building code.  The paperwork simply doesn't call for it.

Steve was pretty irked.  Like... who can I blame for my problems, irked.  After I suggested to Steve that sometimes building inspectors show up and find things - mostly because they are looking and where the prior owner's failure to obtain a permit in the 1960s is discovered, there are a few options, not the least of which is simply obtaining the old permit for the old work - or doing whatever the city requires.  What I had to explain is that, especially in an estate sale context, where people are simply looking to sell and buyers are simply looking to buy, what happened in the distant past is honestly never going to come up - which means that by virtue of a later discovery that something was amiss, that does not make the entire sale a "fraud case" just because the buyer wasn't told.

So what can anyone do to avoid these problems?  Well.... Not much, except to research themselves with the seller any work performed by the owner with whatever public records are available, hire an inspector and general contractor who can state whether everything is up to code (and I mean EVERYTHING) and to access city records.  These tasks are not the job of the attorney, realtor, inspector or mortgage broker.  Any homeowner or purchaser that wants a full history has some work to do.  It can be done... but all in all, the lesson here is that a fraud case is not made simply because a buyer finds out something that he thinks the older owners should have said.  Sometimes that works out - but more often than not - there is no fraud where the sellers didn't know it was a problem.

Big picture:  Do Your Homework in Real Estate.  

For more news you can use - check out www.levinlawltd.com or call Alisa Levin at 312.720.0082 in Chicago, Illinois.