Imagine that you moved into your dream home in Phoenix, Arizona. It wasn’t easy; you searched through listings, found the home, saved up for the down payment, organized the mortgage with your bank, and hired a real estate attorney to work out the purchase agreement. Everything seems perfect. And then, just months after you move in, the basement floods. You hire an engineer to come fix it, at great cost, and he tells you that the water pipes were in terrible condition, and had leaked before. In a situation like this, can you recover from the seller for the damage caused by these undisclosed defects?
Arizona requires that before selling a home, the homeowner must make certain disclosures to the potential purchaser about known material defects with the property.
Specifically, A.R.S. §33-422 requires that sellers of most residential properties “shall furnish a written affidavit of disclosure… to the buyer at least seven days before the transfer of the property.”
Moreover, the buyer has the right to rescind the sales transaction for five days after receiving the affidavit of disclosure. (The theory being that once the buyer sees what issues the house has, he or she may want to back out of the sale.)
The law further requires that the buyer cosign the disclosure statement, and that the seller record that statement with the county clerk at the same time that the deed is recorded (when the sale closes).
The legislature requires this disclosure specifically to avoid the situation that you now face: a surprise defect after the closing, which could have affected the purchase price or convinced you to renegotiate rethink the transaction altogether.
The legislature has codified a short “Affidavit of Disclosure” within A.R.S. §33-422, but Arizona real estate agents encourage the use of a more extensive disclosure form (to prevent future liability), which many home sellers use. The Arizona Association of Realtors comprehensive sample disclosure form is available online. Your seller probably used a similar one. On this form, your seller had to answer nearly 300 separate questions relating to the history and condition of the home. The questions require the seller to disclose issues large and small—from the prior owners, to whether or not the property is near an airport, to the condition of the appliances. If an issue was "material," the seller should have disclosed it somewhere on the form.
If you discover a defect in your home after the sale has closed—for example, a broken pipe or huge hole in the roof—dig that seller disclosure form out of your drawer. Did your seller actually give you the completed disclosure form before you closed on the sale? Was it filed with the deed transfer with the county clerk’s office, as required by Arizona law? If so, was the particular defect you're now experiencing disclosed?
If it was disclosed—even in general terms—you would have been on notice that there was an issue that you should have inspected or otherwise examined further or negotiated over before buying. But perhaps the defect or problem was not disclosed to you at all.
If you discover a significant defect with your Arizona home following the closing, and your seller failed to disclose it before that date, you might be able to seek recovery from the seller in court. You would probably file such claims in the Arizona Superior Court branch in the district where you live (though you may wish to confirm the jurisdiction with your attorney).
Your common law causes of action (bases for a lawsuit) might include, for example, breach of contract, breach of the duty of good faith, and fraud. The statute does not give any specific, separate penalties if the seller fails to comply with the disclosure requirements.
As the buyer, your main legal challenges will be showing that the seller in fact knew about the existence of the defect. A major defect like the flooding of the basement would likely be easy to show the seller's prior knowledge of, based on evidence of past flooding, records from repair people who visited the house at the request of the previous owner, and so on.
A more minor or hidden defect, like mold behind the sheet rock, or leaking sewer pipes, might be more difficult to prove the seller's knowledge of.
Whatever the situation, be sure to take photographs and gather any relevant forms of evidence as soon as possible. These will help a lawyer evaluate the strength of your case and may ultimately serve as evidence in court.