Home Defects in New York: What Can a Buyer Do?

You've recently purchased your dream home in New York. A few days, weeks, or months later, you notice trouble. Perhaps there's water pooling in the basement, the septic system is obviously faulty, or the roof leaks. Do you have to pay for the repairs, or is it possible that someone else is at fault and should pay? If someone else is responsible, how do you get that party to pay a fair share? Do you have to file a lawsuit?

This article will examine the remedies available to you—the home buyer—for defects in your newly purchased, previously constructed home. It will also suggest actions to consider when you find a home defect.

The Basic Rule in New York Is "Buyer Beware"

New York has a long tradition of applying the rule "caveat emptor," or "let the buyer beware," to disputes between home buyers and sellers. That means New York courts traditionally refused to compensate buyers for home defects found after the purchase, unless the seller did something to actively thwart the buyer's efforts to inspect the property and find all of its defects.

However, more recent New York law on home defects has softened. Now, the courts recognize some remedies for disappointed home buyers in limited situations. Let's take a look at some of those remedies.

Remedies Against the Home Seller Under New York's Property Condition Disclosure Act

New York law requires the seller to give you, the buyer, a disclosure statement before you sign the purchase contract. (This comes from the Property Condition Disclosure Act (the PCDA) (N.Y. Real Prop. Law § § 460-467.) The law also requires that the parties attach the disclosure statement to the purchase contract.

However, the seller of your home might have followed the common practice in New York of giving you a $500 credit against the agreed-upon purchase price at the closing instead of a disclosure statement.

For more information on the seller's duties under the PCDA, and the disclosure statement itself, see Selling a New York Home: What Are My Disclosure Obligations?.

If the seller gave you a disclosure statement, but it didn't mention a known defect, the seller might be liable to you for your actual damages under the PCDA. However, your ability to obtain damages under the PCDA depends on your ability to prove that the seller had actual knowledge of the defect and did something to prevent you from finding out.

Notwithstanding your remedy under the PDCA, you still have all of the other remedies available under New York law. So, let's review the buyer's remedies under other New York laws.

Remedies Against the Home Seller Under New York Case Law

In addition to the remedies available to you under the PCDA, you might be able to obtain damages under New York case law ("common law"), created by the state's appellate courts. When a judge in one of these courts writes an opinion in a case, the rulings within become law.

Here are some of the remedies created by the New York appellate courts.

Fraud or Fraudulent Misrepresentation

The home seller might be liable to you for fraud or fraudulent misrepresentation if you can prove that:

• the seller made a written or oral statement of fact that was false, and known by the seller to be false, or omitted a material fact
• the statement or omission was made, or not made, to induce you to rely upon it and purchase the property
• you relied upon the statement or omission, and were justified in doing so, and
• you sustained an injury due to your reliance on the statement or omission.

Notice that you would need to show not only that the seller made some sort of false statement or omission, but that you were justified in relying on it. If, for example, you hired an engineer to make an inspection, but the inspection was inconclusive, a New York court could deny your claim for failure to make a further inspection.

However, if the home seller actively concealed a defect, or if the defect was something only the seller knew about, and you could not have discovered it on your own, even through a reasonable and diligent inspection, the seller might be found liable. Some New York courts consider false statements in the PCDA disclosure statement to be evidence of active concealment of the defect by the seller.

Breach of Contract

Depending on the terms of your purchase contract, the New York home seller might be liable to you for breach of that contract. You would have to show a court that the seller gave you a warranty against the defect in the contract, and that the warranty did not merge into the deed (the document that the seller gave you at the closing passing title to you).

Proving that the seller gave you a warranty in the contract could be difficult because the standard New York purchase contract contains an "As Is" provision stating that you—the buyer—have agreed to purchase the property in the condition it is in at the time of the contract, without any warranties from the seller. The PCDA disclosure statement is supposed to be attached to the contract, but the disclosure statement specifically states that it is not a warranty, so you cannot use the representations in the statement to help you prove breach of contract.

Even if your purchase contract does not contain the "As Is" language, or includes specific warranties of the condition of the property, these warranties often expire after the closing by their own terms, or under the "Doctrine of Merger," a general New York law of contracts basically meaning that all warranties in the contract merge into the deed of the property given to you by the seller at the closing. You can avoid the merger if your purchase contract specifically states that all or some of the provisions will survive delivery of the deed.

Remedies Against the New York Brokers in the Transaction

New York courts have also softened the general rule of "caveat emptor" that applies to the seller's broker or agent, sometimes known as the listing broker. The listing broker, as well as your buyer's broker, could be liable to you for having known of a significant defect and failed to tell you about it.

The broker could have told you orally or in writing and was not required to provide you with a formal disclosure statement. You'd also have to prove that you did not know about the defect and had no ability to discover it through your inspection or other research, such as by making inquiries with neighbors or the local governing body. The "As Is" language in the purchase contract will not protect your broker from liability to you.

The listing broker also has some limited disclosure obligations under the PCDA, and potential liability to you. If you are not represented by a buyer's broker in the negotiation of the purchase, the listing broker was supposed to explain the disclosure requirements of the PCDA to you, and could be liable to you for having failed to do that before you signed the contract.

For more information about brokers' responsibilities and potential liability to a buyer, see New York Home Sales: What the Listing Real Estate Broker Must Disclose.

Taking Action If the Home Inspector Violated New York Licensing Requirements

In New York state, regulations (Title 19 NYCRR Section 197.4 -197-5) require that home inspectors provide all their customers a written contract describing the cost and the scope of the inspection, and inspect at least those home systems and components listed in the regulations.

The Licensing Department allows home inspectors to limit their liability to you in the contract. They may do so by limiting the scope of the work to certain systems or components of the home, or limiting potential damages to an amount specified in the contract or to the cost of the inspection.

While New York courts have ruled that a customer may not sue the inspector directly under these licensing regulations, you may point to a violation of the regulations as evidence of negligence in a lawsuit against your home inspector (see below for a description of possible negligence claims).

You could also report your inspector to the Licensing Department for failure to follow the regulations. Filing such a report will not result in reimbursement of your losses, but could prevent the inspector from committing further regulation violations or negligence.

Remedies Against a New York Home Inspector for Negligence or Gross Negligence

You might be able to sue your inspector for negligence if:

• the defective item was within the scope of the inspection described in the inspection contract, and
• the inspector failed to find the defect due to having failed to make a reasonable inspection within the scope of the inspection described in the inspection contract, or
• the inspector failed to report the defect to you.

However, an inspector may not be liable if the report raised a red flag about the defect and gave you an opportunity to purchase a more detailed inspection of the item for an additional cost.

New York courts will typically enforce liability limitations contained in the inspection contract. They may refuse to grant you damages if the contract excludes the defective item from the scope of the inspection or limits damages to an amount specified in the inspection contract. However, the courts may ignore liability limitations in the contract if the inspector is grossly negligent. Gross negligence is usually described as intentional wrongdoing or conduct that shows reckless disregard for the rights of others.

New York's Consumer Protection Law Remedies Against Seller or Broker

It might be possible for you to sue a property seller or broker for damages under the New York state consumer protection law. (N. Y. Gen. Bus. Law §349). The law prohibits deceptive acts or practices in the conduct of business or in the furnishing of any service within the state. Consult an attorney for more information.

New York City has its own consumer protection laws that apply to homes located in the city. Consult an experienced real estate attorney in your community to find out whether a similar local law might apply to you.

What to Do When You Discover a Defect in Your New York Home

It is important to act quickly after discovering a home defect, because liability is limited by time. Take the following steps immediately to protect your rights:

• Review your purchase contract for "As Is" warranty merger provisions or any other contractual warranties or limitations on your rights against the seller.
• Review your inspection contract and inspection report to determine whether the inspector should have found the home defect; whether the report listed the defect or raised any red flags that should have been further investigated; and whether the inspection contract limits the liability of the home inspector.
• Investigate. Ask neighbors or local officials whether they know anything about the defect or ever saw any workmen, or issued construction or repair permits. Also consider hiring an inspector to assess what conditions would have been present and visible at the time of sale.
• Write a demand letter to the party you believe responsible, describing the defect and why that party is responsible and asking for a specific repair or a dollar amount to pay for the repair. (This serves a double purpose: If it doesn't work to avoid a lawsuit, it will serve as evidence regarding the nature of your claim and your attempts to take appropriate action if you decide to sue.)

You might wish to contact the attorney who closed your purchase, or another experienced real estate attorney, to help you with these steps.

How Much Compensation the New York Court Can Order the Seller to Pay

If a court finds that the seller is liable to you, you will be awarded an amount representing your actual damage—the amount of money it takes to compensate you for your loss and make you whole, but no compensation beyond your actual loss. This amount is usually determined by adding up all of your bills for repairs or replacement to correct the defect.

New York courts have recognized that there might be a few circumstances under which punitive damages (damage in addition to costs, to serve as punishment) may be awarded to a buyer. However, the courts typically limit punitive damages to situations where the evidence shows that the seller's conduct was outrageous or deliberate, with spite, malice, or evil motive, or with such disregard for the interests of others that it could be called willful or wanton.