Legal Remedies If an Oregon Home Seller Lies or Conceals a Defect

Insurance, lawsuits, and other possible ways to claim reimbursement for undisclosed home defects and damage.

The excitement of buying a home can be quickly crushed if you discover an undisclosed defect after moving in. Repairing the defect may, depending on its severity, be expensive and inconvenient. And then there’s that awful suspicion that the seller may have intentionally kept quiet about the problem. In Oregon, if the seller concealed or lied about the defect, legal remedies may be available to alleviate your financial burden.

Whether there is a legal remedy available to you will depend on a myriad of factors, such as:

  • the language in the purchase agreement and/or deed
  • the Property Disclosure Statement the seller should have provided you (see "Oregon Home Sellers: Disclosures Required Under State Law")
  • what the seller in fact knew or should have known
  • what you knew prior to closing, including any defects your inspector informed you of
  • what the seller’s real estate agent, your real estate agent, or any home inspector knew or observed prior to closing
  • when the defect originated or otherwise became visible
  • how quickly you react after discovering the defect.

Given the number of factors in play, every case against a home seller will be different. Since a home is a significant investment, and defects can be costly to cure, it may be prudent to promptly retain a real estate attorney to help you protect your rights.

What to Do After Discovering the Defect

You will want to act fast after realizing that your home came with a problem. Here are some important first steps.

Confirm Whether the Defect Is Covered by Insurance or Warranty

If you’re lucky, the defect you discovered will be covered by your homeowners’ insurance policy or, if applicable, a home warranty. It is also possible, if the defect relates to an appliance, that the appliance manufacturer provides a warranty.

Making a claim to your insurance company won’t preclude from making a claim against the seller. If the insurance company accepts your claim, it may decide to sue the seller itself to recoup what it paid you. If the insurance company denies your claim, you still have the ability to pursue a claim against the seller.

Because strict timelines may apply to your insurance or warranty claim, be sure to comply with any notice or procedural requirements that apply. Additionally, since it may take time for the insurance or warranty company to process your request, it is important to make your claim promptly after discovering the problem. If there is any delay in the processing of your insurance or warranty claim, seek advice from your attorney.

Mitigate Your Damage

It is important to promptly take steps to repair the defect -- at least repair to a point where it isn’t getting worse or causing other harm. Even if the defect doesn’t appear like it is, or will be, getting worse, it may be prudent to retain a contractor to confirm that additional damage will not occur.

If you fail to “mitigate your damage,” the seller may successfully argue that some (or even most) of the damage you sustained is your fault. For example, if the defect you initially discover is only a small leak causing a water spot on your ceiling, but you fail to promptly fix it, and the leak later causes mold, damages the attic, or ruins the ceiling completely, you may be on the hook for the additional damage.

Quickly retain a contractor to examine the extent of the damage and begin repairs. If the defect is covered by insurance or warranty, you may need to use a contractor selected by the insurance or warranty company. The seller, or some other culpable party, may be found responsible for your expenses and be ordered to reimburse you. However, you should not wait for that time. Even if no one is ultimately required to reimburse you, in most cases, it will benefit you to promptly address the defect.

Investigate the History of the Defect

If there is a chance that the seller lied about or concealed the defect, you should investigate further. To do so, you might start by:

  • Asking your contractor to provide you an opinion about when the defect likely began and whether it looks like someone made a prior attempt to repair it or cover it up.
  • Talking to your new neighbors to see if they know anything about the defect and if they know whether the seller knew anything about it. For example, if they saw a plumber’s truck parked in front of the house regularly and the plumber told them, “Wow, the pipes in your neighborhood all seem to be crumbling with age,” this information may help your claim regarding defective sewer lines.
  • Checking with the local building department to see if the seller pulled any permits in an effort to fix the problem before selling the house to you.

Available Legal Claims Against the Seller

Every case is different, so the available claims for relief will depend on the facts of your case. However, some of the common claims a homebuyer in Oregon might make include:

  • Fraud. This is the most common claim in a defect case. Briefly, you will need to prove by clear and convincing evidence that (1) the seller made a representation, (2) that was false, (3) was material to the transaction, (4) the seller knew was false or was ignorant the statement’s truth, (5) the seller intended you to act on the representation, (6) you were ignorant of the statement’s falsity, (7) you in fact relied on the representation, (8) you had the right to rely on the representation, and (9) you were damaged by the false statement.
  • Negligent misrepresentation. Unlike a claim for fraud, a negligence claim will not require you to prove the seller acted intentionally. Negligence claims in defect cases, though, aren’t always successful. Many purchase agreements will “disclaim” claims based on negligence. Additionally, in Oregon, a legal doctrine called the “economic loss rule” bars recovery of economic damages that result from arms-length transactions.
  • Breach of contract. A breach of contract claim is based on the language in the purchase agreement and performance of the seller’s obligations under the agreement.
  • Breach of warranty. Warranty claims are more common with the sale of new homes. However, there may be certain implied warranties made by the seller even with older homes.

What Type of Compensation a Lawsuit Might Gain You

If you are successful in making a claim against your Oregon home seller, the available remedies may include reimbursement of repair expenses, other foreseeable expenses (such as the cost of a hotel room if it was necessary for you to live elsewhere during the repair work), attorney fees, and even punitive damages (to penalize the seller).

You may even be able to rescind the purchase by returning the property to the seller. Judges don’t often grant this remedy, but it may be worth pursuing if the defect can’t be remedied without significant expense. Rescission requires prompt notice to the seller of your intent to rescind.

What claims for relief and what remedy you seek are decisions you will need to make after receiving advice from your attorney. You may also have claims against the seller’s real estate agent, your real estate agent, or even your home inspector. Legal remedies against third parties are beyond the scope of this article.

Forums for Resolving Your Dispute Against an Oregon Home Seller

Litigation is notoriously expensive. Small defects in a home may not warrant the expense and risk of filing a lawsuit. Even material defects warrant careful consideration of how best to proceed.

Here is a description of some of the different forums that may be available to you as you try to resolve your dispute:

  • Mediation. If the seller agrees to mediate, you may be able to reach a settlement without the expense of a trial. Mediation is nonbinding. An unbiased mediator will serve as a go-between to help the parties reach a settlement. A real estate attorney or real estate professional may serve as a mediator. Unless required by a contract between the parties, both parties will need to agree to mediate, so if your home seller refuses to participate, mediation may not be an option.
  • Arbitration. Like mediation, arbitration is a form of alternative dispute resolution that allows you to resolve your dispute outside the traditional legal system. Unlike mediation, arbitration is binding. An arbitrator will act as a sort of judge. You will have an arbitration hearing, which is sort of like an informal trial. Again, unless a contract exists requiring arbitration or the other side subsequently agrees, arbitration may not be an option.
  • Small claims court. If your claim is for less than $10,000, you can file a lawsuit against the seller in small claims court. This forum allows you to have a judge hear your case without the expense of a normal trial. Lawyers are not allowed and cases proceed quicker. Your local circuit court will have more information on how small claims court works.
  • Court. A trial will typically be the most expensive option. However, the formality and strict rules may provide a necessary forum to resolve your dispute. It is possible, though, that your contract requires that you arbitrate the dispute.

The available claims, remedies, and forums to seek relief depend on the facts and circumstances of your case. Seeking legal advice promptly after discovering a defect will help assure you keep all options open.

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