Latent & Defect Foreclosure Laws

Latent and defect laws may not always protect buyers of foreclosed properties.

Latent defects are problems with the property that would not be discovered if the property was carefully inspected. There are many laws regarding latent defects, particularly in foreclosures or the sale of new homes. These laws exist to protect renters or buyers of foreclosed properties. However, sellers may not be held accountable for damages they were not aware of. Both the buyer and seller are responsible for determining the condition of the house before sale.

Seller Must Conduct Due Dilligence

A seller must show that he has conducted due diligence before selling a property. Failure to properly inspect a home could be grounds for a lawsuit if a buyer finds damages or other problems with the house. Lenders set up procedures for assessing damages to any foreclosed property before they attempt to sell it.

Liability Requires Noticeable Damages

Sellers may not be liable for damages they would not have uncovered during a thorough inspection of the property. For example, they may not find damages to the interior of a cement surface during a standard property inspection. On the other hand, obvious mildew or noticeable damage to exterior surfaces would normally be found in a standard inspection. Sellers would be required to report these damages.

Sellers Not Liable for Later Damages

If damages are found, you may have a hard time establishing when they took place. Sellers may have conducted a thorough inspection of the property when it was first foreclosed on. However, after sitting on the market for months, damages may happen. Pipes can freeze, rust can sit and drafts can cause wear on the property. Houses were built to survive with utilities on. Sitting vacant for long periods of time can cause damages the seller wasn't able to foresee.

Different Laws Apply to Disclosures

In most states, sellers are required to disclose all damages to the property before selling. However, in Alabama the buyer is almost completely responsible for inspecting the property and making sure it is up to their standard. Other states have decided that it is unfair to use the empty caveat laws that place such a burden on buyers.

Seller Liable for Damages They Were Aware Of

If the seller actively hid damages to the property or should have found them during a routine inspection, the buyer may have a claim. In the event that the seller would not have been aware of the damages after completing a standard inspection, the buyer will usually have no recourse. Latent defect laws are written to protect both parties.

References

• U.S. Legal: Latent Defect Law & Legal Definition
• Tylerhomes.com: Foreclosures and Distressed Properties -- Bargain or Bad News?
• U.S. Legal: Real Estate Disclosures Law & Legal Definition
• Real Property Section: The Seller's Obligation to Disclosure of Latent Defects in a Residential Real Estate Transaction