When to sue for an undisclosed defect

This post is not legal advice. For legal advice, consult an attorney, not a blog.

You just bought a house! 🙂 Congratulations! You just discovered that foundation is cracked, although the seller said the foundation was fine… 🙁 My condolences…

The next logical question: can you get some recovery from the seller given his failure to disclose and/or concealment of this defect? The absolute first step in answering that question is to determine the amount of money it will cost to fix the problem. There is only one certainty in litigation: it’s expensive. Where the cost to fix the problem is less than the amount you would expect to incur in attorney’s fees and costs, it may very well be in your best interest to bite the bullet and pay for the repair without seeking compensation.

Let’s assume your cracked foundation will cost $50k to repair. That is more than enough to seriously consider threatening and possibly proceeding with a lawsuit. The next step would be to consult an attorney who could analyze your facts and render an informed opinion as to the likelihood of your prevailing. If you’ve got “good facts” (e.g., seller affirmatively represented condition of foundation, crack appeared to have been purposefully concealed, you performed your own inspection that did not identify the crack), then it may be time to take the very serious step of suing the seller (assuming he refuses to compensate you voluntarily).

But what about those attorney fees? They will still eat up most, if not all, of what you seek to recover. (In the case of Stieneke v. Russi, which I discussed in my last post, the cost of repair was $72k, but the attorney fees and costs through appeal were $175k.) Will you be able to recover those from the seller too?

The answer to that question is a very definite “probably” — hardly the assurance you are looking for. Some courts (particularly those in Eastern WA) have determined that this type of claim (fraud) is unrelated to the contract for sale, so that even though the contract contains an attorney’s fees clause (which allows for an award to the prevailing party), no fees are available. Other courts (particularly those in Western WA) have determined that, because the contract is central to the dispute, the attorney’s fees provision would apply. Given this degree of uncertainty in the law, there is a chance that you may win but still end up losing money given your legal costs.

One final note: the attorney’s fees clause in the contract, if it applies, cuts both ways. So, if you sue and lose, you very well may be liable for the seller’s legal fees and costs, in addition to your own. In that case, your total cost for the unsuccessful suit could approach $100k, even if you don’t appeal. Accordingly, it is essential to get good legal advice about the merits of your case and the likelihood of prevailing before filing suit.