Do not conceal water damage before selling your home

by: Robert Pacan

You’ve decided to sell your home and while preparing your home for showings, you discover water damage in the basement. Mold is present on the studs in addition to some damp insulation. What should you do? I see two options: 1) find the cause of said damage and repair it properly before you sell or 2) leave it as is without concealing the damage to potential buyers. Unfortunately for one Brantford, ON couple, a third option was exercised and that was to hide the water damage with sprayfoam insulation and drywall. While this option may have been a quick and easy fix, it resulted in the sellers paying for it in court after closing.[1]

A month after the closing date, the new homeowners were preparing to paint a room in the basement for their daughter’s upcoming birthday party. After peeling away the existing wallpaper, they discovered black mold on the drywall. After several more investigative cuts in the drywall, each uncovering more mold, the entire wall was removed exposing wet insulation and blackened moldy studs. The sellers were invited to the property to observe the damage. The husband seller attended and stated that he was unaware of the water damage. The seller said that his brother-in-law conducted some of the renovations at the home. Upon talking to the brother-in-law, the buyers found out that the seller husband would refuse to install downspouts pointing water away from the foundation because it would impair his lawn mowing. When this was brought to the seller’s attention, he said his brother-in-law was a liar. When approached to cover some of the costs of the water damage repairs, the seller conveniently stated it was not his problem.

The buyers hired an engineer and mold expert to gather evidence. The mold expert’s report recommended installation of downspouts pointing away from the foundation and installing an exterior drainage system. The chronic exterior water penetration through the foundation was found to cause the mold. The water seeping in the foundation wasn’t a onetime occurrence.

While these issues plagued the home, the buyers’ family, which included two children, still needed a safe place to live. The buyers were reduced to half of their living space, there were health concerns for the children due to the mold, and the buyers’ marriage was strained due to the added stress. The buyers felt they had no other option but to repair the basement. Over $62,000.00 in repair costs were claimed in the lawsuit to rectify their damaged basement.

The law holds that latent defects, defects that are known to the seller and make the property unfit for habitation (even if hidden), must be conveyed to a potential buyer. In contrast, when there are no warranties or representations in the agreement of purchase and sale, the buyer is held to the common law principle of caveat emptor (or buyer beware) and must do their own due diligence before buying a home. In most transactions, a home inspection is conducted and the deal is conditional on the buyer’s satisfaction.

In this case, a home inspection was conducted but the inspector was not able to detect the issues behind the drywall in the basement. Therefore, the only recourse for the buyer was a claim against the sellers founded on fundamental misrepresentation. If the sellers knew about a latent defect and took active steps to conceal it, and this defect made the premises uninhabitable, then, the principle of caveat emptor would not save the sellers’ case.  Such conduct would amount to fraudulent misrepresentation.

The trial judge determined that the renovations completed before the sale of the home were an attempt to conceal the chronic water damage and resulting mold, making the home uninhabitable. The judge stated foam insulation was used to conceal the water damage in a way that would lead to no other conclusion.

The court awarded the buyers the costs of the repair, with a further $30,000.00 in general damages for the stress and anxiety in dealing with their ordeal. The lesson for potential sellers is do not conceal damage that may make your home uninhabitable for potential buyers. While you may end up closing the sale of your home, your actions may lead you to a future date in court.

This blog contains strictly general information and is not intended to replace advice from a qualified legal professional. The contents of this blog are therefore not to be relied upon as such. Any facts or examples used are for illustrative purposes only and not intended to address specific incidents or problems. Use of this information does not constitute a lawyer-client relationship. Retain a lawyer for legal advice prior to making any decisions referenced in this blog.

[1] Kelly et al v Pires et al