We recently moved into a home, and thought we'd done all our due diligence—we carefully read the disclosure form that the seller provided to us, hired a home inspector, and Googled the address to make sure nothing terrible had happened here.
But we've just learned from a neighbor that the former owner's son died of a drug overdose in the basement last year. I am thoroughly creeped out. I can't stand to set foot in the basement; I get shivers up my spine and imagine his ghost is there, still in pain.
I get it that the home inspector and news reports weren't a good way for me to find out about this, but what about the disclosure form? Shouldn't the buyer have told me about the tragic death on the property?
What the seller's legal obligation to you was, in such a situation, depends on the law regarding seller disclosures in your state. If you live in California, for example, the seller was legally bound to tell you whether any deaths occurred on the property within the last three years.
If you live in some other state, however, you're far less likely to find such an obligation written into the law. In fact, some states' laws or court decisions specifically advise sellers that they need NOT disclose deaths on the property to buyers. (Examples include Arizona, Georgia, and Pennsylvania.) The reasoning is typically that the past occurrence of a death on the property is not a physical defect but merely "psychological damage." It's also a private matter for the family who lived there when the tragedy happened.
A court in Pennsylvania, for example, considering the issue of whether the seller should have told the buyer about a murder/suicide that had taken place in the home, found that the answer was "No," stating:
The psychological effect will vary greatly from person to person. There are persons for whom no amount of money would induce them to live in such a house, while others may not care at all, or even find it adventurous. Further, as noted, the monetary value of such a psychological defect will dissipate with the passage of time as the memory of the murder recedes.
(Milliken v. Jacono, 60 A.3d 133, 2012 PA Super 284 (2012)).
Pennsylvania is at a far end of the spectrum, with its holding that only physical defects can affect a home's value and thus need to be disclosed.
Many states take a more middle-ground approach, recognizing that a property can be "stigmatized" by extreme occurrences there (such as a high-profile murder). A stigmatized property is materially damaged in the eyes of most buyers, and sellers therefore likely need to disclose the events in question.
In any case, if you were to attempt legal action against the seller in any state that doesn't have an outright death-disclosure requirement like California's, you're likely to face arguments along the lines of those voiced by the Pennsylvania court: that given the variety of human responses to deaths that weren't murders or otherwise newsworthy, the seller in your case was not legally bound to disclose the death on the property.
For further information about the law in your state and your legal options after having bought the home, consult an experienced real estate attorney.