Imagine that you purchase a home in the Bluegrass State. The seller tells you that the home is in perfect condition—brand new pipes, modern kitchen, and so on. You close on the transaction and your family moves into the home. Within days, you are developing allergic reactions; then discover moisture and mold in the basement bathroom, the garage, and the upstairs closets. The cost of remediation will run into the thousands of dollars.
This is an example of an undisclosed defect—that is, a material problem with a home that its seller likely knew about, but never mentioned before the sale. If such a thing has happened to you, what remedies do you have against the seller under Kentucky law?
Before considering your potential remedies, check out Kentucky’s real estate disclosure regulations for sellers. Kentucky Revised Statutes § 324.360 requires that sellers of single-family residential property make certain disclosures to potential buyers. This law applies regardless of whether a licensed salesperson or broker is involved in the transaction.
The statute specifically points to a sample disclosure form created by the Kentucky Real Estate Commission. The four-page form breaks down its questions into ten categories covering various elements of your home. They are: (1) House Systems (such as plumbing, electric, heating, and so on); (2) Foundation/Structure/Basement (whether, for example, there are any known leaks); (3) Roof (whether there have been any recent repairs or problem spots); (4) Land/Drainage (in particular, whether there are any flood zones on the property); (5) Boundaries (whether, for instance, there are any known easements on the property); (6) Water (whether the drinking water has ever been tested, for example); (7) Sewer System (whether there is a septic tank system on site and so on); (8) Construction/Remodeling (such as whether there have been any structural additions or changes to the home); (9) Homeowners' Association (whether the owner will be subject to any rules by a governing community association); and (10) Miscellaneous (such as whether the house contains any known environmental hazards like radon gas or asbestos).
As you might imagine, the Kentucky Real Estate Commission is trying to give prospective buyers a very comprehensive snapshot of the home. These exhaustive questions, if answered completely by the seller, should have alerted you to any problems or red flags. Take another look at the form you received to see whether the issue in question was raised and whether the seller answered it. (Perhaps you overlooked an honest disclosure.)
The Kentucky Real Estate Commission makes explicit on the form that: “This disclosure is based solely on the seller’s observation and knowledge of the property's condition and the improvements thereon. This disclosure form shall not be a warranty by the seller or seller’s real estate agent and shall not be used as a substitute for an inspection or warranty that the purchaser may wish to obtain. This form is a statement of the conditions and other information about the property known by the seller. Unless otherwise advised, the seller does not possess any expertise in construction, architectural, engineering, or any other specific areas related to the construction or condition of the improvements on the property. Other than having lived at or owned the property, the seller possesses no greater knowledge than that which could be obtained upon a careful inspection of the property by the potential buyer.”
Thus, while Kentucky requires the seller to fill out this form, the form itself clearly warns that the seller is under no obligation to verify any of the disclosures with a formal inspection or engineering report. The seller was only obligated to disclose defects about which he or she actually knew. That is, the seller does not need to check every room in the house, or hire an engineer to do so, before giving you a disclosure form. So you'll need to consider the possibility that the seller did not notice the problem (more plausible than you might think for someone who has lived in a home long enough to become blind to its quirks and issues).
With the above disclosure regulations in mind, what can you do if you discover a nasty surprise in your Kentucky home?
Unfortunately, unlike most states, Kentucky’s statute on disclosure does not provide a direct cause of action for you against the seller. Kentucky Revised Statutes § 324.360 merely requires that the seller give you the disclosure form, but does not say anything about the legal consequences for a seller who gives false or incomplete information.
This does not mean you cannot sue, however. You may consider two common law causes of action under Kentucky law: fraud and breach of contract.
Fraud is a common law cause of action that results from one party making a statement that is knowingly false in order to induce a party to take an action. For example, imagine that the seller told you (verbally or in writing) that the kitchen appliances were brand new. However, when you moved into the home, you discovered that the refrigerator was decades old and near the end of its life. Obviously, this false statement was made to induce you into purchasing the house. This might constitute fraud.
You may also have a breach of contract cause of action against the Kentucky seller if the language of your contract made certain guarantees. For example, your purchase contract specifically stated that the seller would deal with all asbestos in the ceiling tiles before closing, but in fact never did this abatement work, he or she would be in breach.
What should you do if you discover a serious defect in your newly purchased Kentucky house? First, you should act quickly. Sellers may be moving out of the state, or even out of the country, and the longer you wait to contact them, the more difficult it might be. Moreover, statutes of limitations constrict when you can bring certain claims. Second, consider the scope of the problem (with a repair company’s estimate) before initiating legal action. Lawyers and lawsuits are expensive; thousands or tens of thousands of dollars. You would be foolish to throw good money after bad if the defect is relatively minor.
Finally, if the defect really is significant, it makes sense to have a consultation with a real estate attorney. If you do not know a lawyer, call the Kentucky Bar Association, a lawyers’ organization, that might be able to refer you to an attorney with the appropriate background. The attorney might begin by writing a strongly worded demand letter to the seller, stating the problem and making a request for payment. Often, this sort of a formal demand letter can at least provoke some settlement discussion. If the seller still refuses to respond or negotiate, it may be time for a lawsuit.