Purchased a foreclosed home. Has major structural issue (sinkhole) that previous owner claimed insurance on. Is there any course of action?

Asked by Sinkinghome, Orange, CA Sat Jan 21, 2012

I am still experiencing issues with the house. it seems like the foundation is sinking in the center of the house. When the insurance claim was made previously the recommended repair was to fill the area under the house with grout. Home owner moved forward with different/cheaper repairs. Is the bank responsible for disclosing any information? Or do I need to move forward with pursuing claims with my insurance company? Any recommendation of how to proceed would be helpful.

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Michael Emery, , Minneapolis, MN
Sat Jan 21, 2012
The bank is only responsible for known defects that occurred during the time the home was in their possession. They wouldn't be liable for anything else as there is no way to prove they were aware of any defects that occurred prior to their owning the property.

And to further insulate themselves from liability, the bank sold you the home 'as is' with not guarantees or promises.

An example of a defect known while in the banks possession would be if the copper pipe was stolen after they foreclosed. They would have to disclose this fact - which in fact benefits them as once the buyer is aware of the defect they are assuming responsibility for repair of the defect as they purchased the home 'as is'.

You will need to talk to your insurance company. They may attempt to tell you it was a pre existing condition which limits their liability, unless you can prove that part or all of the damage is new.
1 vote
Terry Farnsw…, Agent, Lisle, IL
Thu Oct 3, 2013
I would read the addendum to your purchase contract that the bank likely would have made you sign, or consult with an attorney to explain it to you.

Typically, REO properties are sold "as-is", and the seller (bank) makes no representation as to the condition or possible issues with the property. They are exempt from providing disclosures, because they have not occupied the property. Either you, your agent, or attorney should have also done a little research on any insurance claims that were previously made on the home. Had this been done, you would have been aware of the potential of this problem prior to purchase.

Additionally - was an inspection done on this property? I am a little confused by the fact that it seems like you had no indication that anything was wrong with the property prior to occupying the home. Foundation issues don't happen "overnight" - so any issue, or potential of issue, should have been uncovered during the inspection period generally built into your contract - to allow you an "out" if you were uncomfortable with anything.

Either you bought this property completely "blind" - or I am missing some critical information. I would consult with an attorney to review your contract/addendum and determine an appropriate course of action.
0 votes
David Carr, Agent, North Haven, CT
Wed Feb 22, 2012
As an practicioner with extensive past REO experience I would advise you to review the seller's as is addenda that may have been a part of the contract. In CT REO is not required to give a property disclosure since the sellers have not occupied the property
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Matthew Bart…, Agent, Glendora, CA
Fri Jan 27, 2012
Hi Sinkinghome,

You will certainly need to speak with an Attorney who specializes in Real Estate law. You should also bring out your property inspector prior to any repairs being made to have them re-inspect the home. There may have been clear signs of this problem when the home was inspected, therefore the inspector should have listed them in their report. Your inspector will be able to determine if this was infact a pre-existing problem that they missed. As Bob mentioned below, requesting a CLUE report from the Seller or at the least calling your insurance company to verify the homes insurability during your inspection period may have flagged this problem in advance as well. As far as the Bank being responsible, they can only disclose known material facts. Because the home was a foreclosure most of the standard disclosures are not required simply because the bank or their reps have not lived in the home. Property inspections take on an even bigger importance when purchasing a foreclosed home. Good luck to you!

0 votes
Cj, Both Buyer And Seller, 95129
Fri Jan 27, 2012
I strongly suggest that you seek legal advice on any of your real estate transaction.

Let me know if I can help you get FREE legal advice from the top law firms across the country.
0 votes
Bob Phillips, Agent, Rancho Santa Margarita, CA
Sat Jan 21, 2012
A buyer's agent, on ALL purchase transactions, should put in the contract that the seller provide a CLUE insurance claims history report. If the seller ( Because they're an REO owner.) won't provide one, the buyer's agent should. ( I think it costs less than $25.) This might have tipped you off to the problem - at least to the extent that you could have gotten an inspection done, by someone familiar with such a condition.
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