One of the legal issues that frequently arises following a real estate transaction is a dispute over undisclosed “latent defects.” Buyers will ask how they can get damages after discovering a problem with their recently purchased home. In these instances, the buyer usually explains that the seller did not disclose the problem and therefore believes that the seller must pay to correct this defect. Unfortunately, it is not that simple because there are many steps and costs involved in successfully bringing a “latent defect” case. This article will provide a general overview of those issues.
In Maryland, most transactions are written on the MAR Residential Contract of Sale (the “Contract”), which is where each party derives their respective rights and obligations. As a result, a buyer needs to understand a seller’s responsibilities under the Contract. Both parties must acknowledge receipt of the Notice to Buyer and Seller of Buyer’s Rights and Seller’s Obligations Under Maryland’s Single-Family Residential Property Condition Disclosure Law. This notice informs them that the seller will provide either (1) a written property disclosure statement; or (2) a written disclaimer statement. The seller complies with this obligation by deciding which statement to provide and completing the Maryland Residential Property Dis- closure and Disclaimer Statement (the “Disclosure and Disclaimer Statement”).
The Disclosure and Disclaimer Statement contains the legal definition of “latent defect” as established in the Maryland Annotated Code, Real Property Article §10-702. “‘Latent defects’ means material defects in real property or an improvement to real property that: (1) A purchaser would not reasonably be expected to ascertain or observe by a careful visual inspection of the real property; and (2) Would pose a direct threat to the health or safety of: (i) the purchaser; or (ii) an occupant of the real property, including a tenant or invitee of the purchaser.”
With that foundation, we return to the original question. How can the buyer recover damages if the seller failed to disclose a latent defect? Once again, the buyer must look to the Contract, which requires the parties to mediate any dispute or claim arising within one year following the actual contract settlement date. The mediation is conducted by the Maryland Association of REALTOR®’s Mediation Program and the penalty for fi litigation prior to mediation is the payment of attorney’s fees to the party that is enforcing the mediation clause. The mediator does not have the power to make a binding decision and if the mediation is unsuccessful or the seller did not respond to the mediation action, the buyer is then free to pursue litigation.
Once the dispute has been filed in court, to recover any damages the buyer must prove that the seller knew and failed to disclose a defect that is (1) material; (2) would not be expected to be observed by careful visual inspection of the property; and (3) poses a direct threat to the health or safety of the buyer. To establish these requirements, in almost every case the buyer will have to hire an expert witness to inspect the property, write a report providing his or her opinion on the defect, and testify at trial. Additionally, the buyer will have to establish damages that resulted from the seller’s failure to disclose the latent defect. These damages can be costs to repair the defect or personal injuries caused by the defect. Expert witnesses will also likely be needed to establish the buyer’s damages. Unfortunately, in many situations, the litigation costs may exceed the total amount of recoverable damages. As a result, buyers and their counsel must realistically evaluate the cost of success before pursuing latent defect litigation.
Here at Liff, Walsh and Simmons, my colleagues and I have helped many business owners determine their best options and opportunities to successfully navigate litigation. If you have questions about a particular business issue, or would like more information, email me at Jcrossan@liffwalsh.com or call me direct at (443) 569-7264.
About Liff, Walsh & Simmons
Liff, Walsh & Simmons is a business law firm. We provide expert, responsive legal services to middle-market businesses, their owners, operators, and investors across the mid-Atlantic region. Our attorneys are subject matter specialists in business counseling, contracts and transactions, commercial and civil litigation, real estate, employment, banking and finance, real estate, land use, zoning, and estate planning and administration.
