Legal Review
Legal Review
The California Real Estate Market turned into a Seller's Market with COVID kickoff in spring 2020.
Home values rose over 30 to 40% between March 2020 and March 2021. Almost all homes priced somewhat appropriately below $1M are receiving multiple offers. Buyer's are being forced to forgo home condition contingencies and financing contingencies to be the competitive bidder that wins an initial bidding contests.
During these types of market conditions it's customary and/or imperative for a Seller and Seller's Agent to attempt to provide all of the following in a public manner prior to asking buyers to enter into competitive situations:
"honest" disclosure documents from the seller
"honest" pre-sale home inspection
"honest" pre-sale termite inspections and
"honest" pre-sale septic inspections
The Seller and Seller's agent are "not required" to provide any of this by law or statute prior to listing. In a situation where they expect competitive bids but it is "highly recommended" for numerous reasons related to fairness and liability that may be scrutinized in more detail than normal if latent defects are found after a sale in which the buyer felt that either he needed to accept the defects or another less educated might get stuck with them without full and proper disclosure.
In this Case, Buyers had been lead to believe an unrepresented buyer had been a competitive bidder during the initial offer process. They had been lead to believe that buyer was assigned to another Agent in the Listing Brokers office, and they were concerned if they walked away a less educated buyer may be severely taken advantage of.
To be clear, buyers completed the transaction for their own interest. Protection of others and the desire to expose this racket was relevant but secondary.
The Buyer/Plaintiff's are Bryan Canary and Holly Bowers.
Bryan bought and renovated more than 20 Baltimore row homes between 1998 and 2012. He can build an entire home with his own hands. He built his third home, a 2100sf with the assistance of one homeless person and a few subs for electrical, mechanical , roof and drywall only (All of which he can do now himself)
He lived in three of the homes he renovated and the others were for investment purposes.
He has been a licensed real estate agent in Maryland since 2002, a licensed contractor in Maryland since 2005, and he still owns and manages rental properties in Maryland as he has done since 1998.
Holly purchased her first home as a single woman prior to meeting Bryan. She has experience with home design and home décor for more than 20 years. (expand for more)
This property presented an extremely unique situation for us that we did not see when looking actively in the marketplace for over 6 months. We had the skills to recognize what we were looking at and we had the ability to look past the immediate costs of defects and flaws to complete the transaction when others should not have and would not have. We knew there was a chance we could recoup the over payment situation that became a demand from us. That is is why we stuck with this transaction.
The expected mortgage on this property is $3250/month given the down payment and financed amount we have chosen. The ability for us to live on the property as our primary residence while also reaping as much as $3200/month in rental income and business income with minor additional investment and sweat equity exists. That's what makes this home so very unique for us.
More details on this can be provided. Had this "just been a home' we would have walked away and most likely this home would have been re-marketed until an uneducated buyer paid more than they should have for this property given the disclosures provided by the Seller and the marketing techniques employed to move the property.
https://www.zillow.com/homedetails/12-Bayview-Rd-Castroville-CA-95012/19364748_zpid/
The information below represents a summary of our experience with 12 Bayview Road. We understand that pursuing claims for Negligence, Fraud and Conspiracy to Commit Fraud, are not simple nor easy. That said, the egregiousness of the behavior is startling. Hopefully some of the procedural items related to the SPQ and the AVID stand out as an easy target to get going. The rest we'll just have to play by ear...Expand for 20 point bulleted list....
We have an SPQ provided by the Seller after ratification that was incomplete and is incomplete to this day. Answers related to property flooding and mold were left blank, other answers were known to be patently false, and other answers proved to be false on matters that assuredly were known to the Seller prior to providing the form as part of his disclosure packages. NOTE: After an RR was presented with details related to latent defects that had been covered up by the seller, the seller refused to make any repairs and a demand with 48 hour notice was provided to the Buyer to release all contingencies or lose the buying opportunity. At that point the seller was asked to provided a completed form with answers to the two questions he had failed to answer that had become very relevant, and the Seller refused, claiming answers provided via email should have been sufficient ( so to date, we have no fully completed SPQ and the answers missing are related to latent defects discovered during the investigation process).
.We have a Seller's Agent AVID that was provided to the buyer as part of initial disclosures that was unsigned by the Seller. Multiple requests were required to get a signature on that form. The seller later claimed he had no need to disclose grade/flooding issues because some were disclosed on the AVID that he provided unsigned at time of Ratification.
We have the Seller's 2021 pre-sale inspection reports (home and termite) that OMIT or grossly diminish very relevant information in an unusual way. This is vague, but it will make more sense when you see subsequent items, information and other reports from similar vendors that should not be as different as they are. .
We have major disturbance in insulation in the 2nd floor attic due to rodents that was not disclosed. Seller paid contractor to closed up attic access in preparation for sale.. Seller's presale home inspector claimed he was unable to inspect attic due to access size (which was more than sufficient for viewing as long as he was willing to remove 4 drywall screws and the panel used to close up access that had been installed a few months prior). The Seller had a rodent problem in the attic that was under-disclosed on his SPQ. The Seller had to make some repairs in the 2nd floor attic due to rodents that was not disclosed. The seller failed to replace 900sf of insulation damaged by rodents. The seller paid a contractor in the fall of 2020 to close up access to the 2nd floor attic as part of his work to prepare the home for sale.
We have a quote for 8k in termite repairs from an "honest" termite report inspection that was not accounted for at all on seller's presale termite inspection. The report the seller provided was simply incomplete. These reports are hard to understand and only someone familiar with what a full report should look like would have known there was relevant information missing. The Termite Damage and dry rot to the fascia was seemingly freshly caulked and painted in an attempt to "beautify" the property for sale.
We have a failure to perform the Septic Inspection prior to listing the home. "suspicious only". But then we had odd moves in the negotiating process related to a septic inspection addendum and subsequent manipulation of the Septic Inspection promised that resulted in the delivery of an incomplete inspection as compared to what was promised in the contract. The Seller's Agent scheduled a lessor inspection process than was promised in the contract as part of a counter offer. At buyers expense which should have been sellers expense, flaws and defects in the line from the home to the tank were then discovered. It was later revealed by the Septic Company a map familiar to them detailed the same defects since 2013. The Septic Company indicated there is little chance anyone could have occupied that home for more than a few months without having had minor or major backup issues that would have required intervention to clear. The Seller's Agent then failed to forward the Seller's completed Septic Inspection to the Buyer for submission to the bank for two weeks. This report was void of the information the buyer had been forced to obtain via his own inspections. Managerial involvement was required to obtain that report from the Seller's Agent.
We have a 2015 home inspection report that was done for the seller when he purchased the home that details significant and relevant structural concerns related to a side and rear wrap around deck with rotting Cantilevered joists that was never investigated at that time and removed and concealed in preparation for sale in 2020. . The concerns on the side were totally removed from the property and the potentially damaged areas were fully concealed as part of the preparation for sale process.
We have a new deck constructed on the back of the home in preparation for sale that was built by a licensed contractor without permits or engineered drawings.
We have a section of wood siding above the prior deck that was heavily caulked and painted to cover up wood siding that was far more weathered and aged than the rest of the home.
We have 2015 receipts showing the removal of Asbestos from the home was not disclosed (none seems to remain now, so seemingly no ongoing issue but the lack of that transparent disclosure is concerning).
We have "unexplained' water damage in the dining room floor that was the result of an under-disclosed or non-disclosed water flooding event that seems to have caused issues to insulation in the crawl space that were explained away as "naturally falling insulation" by the pre-sale home inspector on his report. He later clarified in email that he thought maybe it was a result of rodent activity, without considering it was all underneath an area of water damage he should have noted on his report which he did not.
We have small but noticeable enough indications of settling that seem like they are newer with no disclosure by the Seller, the Seller's Agent nor his pre-sale home inspector (who most certainly should seen them and noted them in some form or another). The person one home up who co-managed parts of the community water company with Seller for 5 years knows of settling work done on the home 10 years ago yet the seller claims that information was never shared with him by his neighbor, the agent for the seller he bought the home from nor any of his inspectors. He also claims he did not notice it when in fact, it's evident over the garage doors he used regularly.
We have receipts that show the process for preparing the home for sale only transpired from July 2020 to November 2020 , not from July 2020 through March 2021 as indicated verbally by the seller's agent who was managing the work. The home was seemingly left vacant with no work being done and not listed for 5 months, while the sellers seems continuous of carrying costs? FYI - This time period in this part of the state is rainy season. The seller and seller's agent initially indicated the work to prepare the home for sale transpired from July 2020 through March 2021 but that is not what the receipts and documents provided by them show. The seller indicated a concern for carrying costs as part of our contract process, thus why have the home sit doing nothing from November 2020 through March 2021? This timeframe correlates to rainy season in this part of the state. There is a concern the home was not listed during that time to avoid buyer or buyer inspector discovery of flood or mold spore problems. NOTE: without being there during that time we can claim for 100% certainty there were drainage and runoff problems as all the downspout tails were all blocked and the wrong pipes were used to evacuate that water.. A backup would flood the yard and the crawl space given the pipe configuration.
We found a "flood management system" in the crawl space that two of Seller's Home Inspectors and his termite inspector failed to inform him of .
We have 8" flood lines in crawl space and very evident flood marks coming through a ground level vent by the kitchen that his two inspectors and termite inspector failed to note on reports. (The flood marks may not have been there in 2015 but based on the condition of the downspout systems and clogged deck drains they and the nature of the marks, they were not new in early 2021).
We have a Seller's Agent who took over the process of preparing the home for sale in July 2020 when the seller left the state. Thus the Seller's Agent oversaw all the work to prepare the home for sale, the inspections used to market the property and the omitted Septic Inspection that turned sour with his manipulation. This role the Seller's Agent played starting in July 2020 was not disclosed up front nor was his personal relationship to the seller beyond that of being his listing agent. This was all "figured out" about a week after ratification. Once asked the Seller's Agent became clearer about his role as if it was "okay" for him to have been so heavily involved with these activities. At that point the Seller's Agent also indicated he knew the seller from church.
After the Seller's Agent disclosed the level of his role in preparing the property for sale, he revealed a leak had transpired in the upstairs bathroom early in the owners occupancy that had caused water damage to the lower bathroom and laundry room. The Seller's Agent revealed that problem went unresolved until the home was prepared for sale some 3-4 years later...
From day 14 through day 25 the Seller's agent became extremely manipulative and inverted. He answered nothing directly without numerous requests. He started inverting everything.
The Seller's Agent assisted the seller in declining Repair Request when it was presented. The Seller's Agent delivered the Seller's demand to remove all contingencies. The Seller's Agent indicated the Seller refused the request for a completed SPQ as part of Buyer consideration for removing condition contingency
And there's more, but you get the gist now...
This information was uncovered during a very fast moving 17 day initial discovery period as allotted by the standard CA purchase agreement . The 17 day period was extended by 7 days when the seller had failed to deliver responses to questions and inquiries posed around Day 14 and 15 once some of the information above had come to light. In response to demand for documents, which some Attorneys will see as a request for interrogatories, the seller produced about 45 pages of documentation and written testimony.
Around March 17, 2021 12 Bayview was listed for 895k with a magnificent view but no updated bathrooms and kitchens.
ZERO disclosure documents or pre-sale inspection reports were provided by the Listing Agent in MLS for review. We have not found this to be the norm in this Seller's Market (so that was a flag).
It seemed overpriced from photos, but the view is amazing and that's always tough to quantify. Uninterested in getting into a competitive bidding situation on a partially remodeled home priced that high we waited a week to see if it was still on the market. When it was, we decided to take a look at it.
On Tuesday March 23, 2021 our agent called the Seller's Agent to schedule a listing. She asked about disclosure documents and was told some could be provided. None were delivered prior to our showing.
On Wednesday March 24, 2021 when we arrived we found a large, generally clean home. The Listing Photos generally portrayed the home accurately to and including an obvious defect/flaw and an expected amount of deferred maintenance. The two items that caught us the most off-guard were items/issues that were noticeable within 10 seconds of entering the home and 2 minutes of entering the home. They were things that any Seller or Seller's Agent wishing to sell an $895k home should have resolved / cleaned up prior to listing. As experienced home buyers and Agents, it was as if we were looking at minor items staged for distraction and that caught our attention.
On Wednesday Evening our Agent contacted the Listing Agent and indicated we were going to be making an offer. She again asked for disclosure documents and she asked if the Seller's Agent would meet us after a showing on Friday.
On Friday March 26, 2021 we walked the home again and then met the Agent after the showing. The agent did not have any disclosure documents for us when he arrived. Buyers were introduced as licensed realtor and licensed contractor immediately to avoid any disclosure issues later. (expand for more)...
We discussed obvious concerns related to condition like minor but obvious termite damage indoors that had been unrepaired and the cracked slab in the pool house. Buyers expressed concerns getting an appraisal with these minor items unrepaired. Seller's Agent seemed unfamiliar with an Appraiser's Role in identifying these types of issue for a bank. He indicated appraisals had been getting waived for new transactions with larger down payments. Buyers were totally unfamiliar with that concept. With thought it made sense, BUT it also had the ability to create "unverified" comps that could be inflated that could then be used by appraisers to justify other sales. (do you see how the market has climbed faster than it might have otherwise now?)
Buyer's also asked about the obvious unkempt pantry and noted Seller's Agent's response to be quite odd and uncustomary. (more on this elsewhere).
Buyer's Agent indicated he had been told others would be making an offer but he had received no such offers yet.
Buyers and Buyers agent were shocked when Seller's Agent indicated they "forgot" to get the septic inspection done. At this point Buyers and Buyers Agent presumed Seller's Agent was a full time agent with potentially many deals in the hopper. They also presumed Seller's Agent was arm's length from the seller. Neither of which turned out to be the case, making this "forgetfulness" far more suspect, especially in context of all later behavior related to the Septic Inspection.
On Friday March 26, 2021, Seller's Agent delivered emails that we expected would contain all relevant and important disclosure documents. Only a pre-sale home inspection, a pre-sale termite inspection , a photo of the wrap around deck and a photo related to utiilty bills was provided.
A review of the Home Inspection revealed an abnormal level of omissions and gloss that would be evident to anyone with Home Inspection Report review experience.
A review of the Termite Inspection revealed it was only partially complete. Damage was noted, but no estimates were provided for damage repairs.
An email was sent from the Buyer to the Seller's Agent convey concern for the lack of information and a preference to do all inspections prior to making an offer. In that email it was made clear that the Buyers were going to write an offer without doing their due diligence upfront as they preferred to both protect themselves (and sellers who might not be as honest as they should be).
On Saturday March 27, 2021, an offer was submitted for full price. We had been concerned about a competitive bid situation. Our goal was to make the strongest offer possible and then use our inspections to either validate condition or discover conditions that would need to be negotiated on and/or fully undisclosed conditions that a seller should have disclosed that "should be" a requirement of the seller to remediate if they were discovered.
We were told we were the winning bid in a competitive situation but that a counter offer was coming over with minor requests.
They changed our settlement window from 60 days to 45, claiming they didn't want longer than necessary carrying costs. (!?)
They declined mediation as a required part of disagreements (that got our attention for sure...)
They removed our request for a Septic Inspection and replaced it with their own addendum that seemed complete, with the exception of removing the certification part of the process (that got our attention). In retrospect, that certification removal may have been to get buy with the lesser inspection that was performed as compared to what was promised (or maybe not).
Needless to say, by this point the lead buyer was on high alert, telling everyone else to pay attention. They all were so enamored with the view they were thinking he was overthinking things...
In addition to walking the entire home we had specific goals:
Review the Termite Report
Inspect the the 2nd Floor Attic (uncover the mystery left from the seller's presale home inspection)
Inspect the 1st floor Attic
Inspect the Crawl Space
What was found was shocking. It was not deal ending but it was shocking. To think anyone had a contractor on site on and off for 7 months prepping the home for sale who didn't tell them about or help them remedy some of the issues found was startling.
The slightly sloping floors were first noted by this contractor and the minor settling issues were then discussed. No major structural issues were found, but we found it odd the pre-sale home inspector had not commented at all.
Crawl space flooding issues and flood management system noted. Below slab ductwork found. Other inconsistencies with plumbing main lines found. Grade issues found. Sink hole in yard near crawl space entrance found.
A full and more thorough Termite Inspection was completed. He went into attics and the crawl spaces and checked bathrooms. None of which seemed to have been done or noted by the termite inspector hired by the Seller's Agent. He quoted the repairs to fascia and primary home at approximately $8k. That was comparable to the guestimate of the contractor prior.
The Home Inspector hired is a Licensed Contractor and Home builder. He did a very thorough job. He was first to notice the cupped floors in the dining room. His initial suspicion was moisture from underneath. The more logical conclusion is a floor level flood that soaked the insulation from above and forced it to fall out. He noted many of the flaws and defects with photos in his report.
The Home Inspector hired is a Licensed Contractor and Home builder. He did a very thorough job.
Based on what can be seen, the concept of "plumbing work throughout" was a false suggestion in the disclosure documents. Almost everything that can be seen is original or modifications of the original work "Plumbing repairs throughout" would have been a more accurate disclosure. The rough plumbing system is approaching end of life and should have been fully changed out before all the drywall was put back on place of the paneling. Fire and safety hazards noted on 2015 inspection were still persisting
The HVAC inspection confirmed below grade ductwork with no easy way to assess condition and no method for repair if that failed. They also revealed a duct work design flaw that no other inspectors picked up on. Only half the return air is getting filtered. The thermostat wire is only a 2 wire so no fan option exists to activate the fan only.
The chimney on the roof was noted as bad in his 2015 report. that issue seems to have been fixed. The chimney is missing a proper spark arrestor and protection from moisture intrusion. the damper handle is broken but that was disclosed.
This inspection was requested by Buyer after receipt of 2015 home inspection report. The request was acknowledged initially by Seller's Agent but the authorization to do work was never granted nor was the work done by the Seller for Disclosure purposes.
On Friday 4/23/2021 I provided the Sellers with a RR requesting a price adjustment for non-disclosed items found during inspections that the seller was or should have known about. The numbers presented were not firm. They were maximum consideration and I hoped/expected the Seller to Negotiate based on information presented.
On Tuesday 4/28/2021 I received a declination to my RR and an NBP. We were told we had 48 hours to remove all contingencies from seller or the seller would cancel the transaction ( condition, financing, appraisal, etc) .
On Wednesday 4/29/2021 I replied with a notice a NSP requesting :
A fully signed SPQ with definitive yes/no answers to the two questions that were initially left blank related to water problems, flooding and mold which was had been trying to gain clarity on since receiving the incomplete disclosure document just after ratification.
A reason the home was left vacant and unlisted from November 2020 and March 20201 after all work done to prepare it for sale was completed between July 2020 and November 2020. This fact only came to light last Thursday. Prior to last Thursday we were lead to believe the work to prepare the home transpired over a 7 month period (and that was after we figured out the sellers hadn't vacated just prior to listing, which was the assumption we had when we ratified).
A request / demand for more time for the Financing and Appraisal release given the seller only provided us the Septic Report on 4/22/2021. - This report should have been available to us prior to ratification three weeks prior. Managerial assistance was required to obtain the copy on 4/22/2021.
On Wednesday evening, 4/29/2021 my transaction coordinator spoke with the Seller's Agent.
The Sellers Agent felt no updated SPQ is required to be completed by Seller. He has indicated the information related to the unanswered items on the SPQ was provided in email correspondence and that should suffice.
The Sellers Agent ignored item 2 (as far as I can tell from my dialogue with my TC at this time)
The Sellers Agent feels they've done the work on the Septic that should satisfy the bank and thus he feels a release is due to his seller.
On Thursday, 4/29/2021, in the absence of retained legal counsel, which I started pursuing on Monday 4/27/2021, Holly and I feel our only "guaranteed" way to stay in this transaction and to block a quick transfer of the property to an unrepresented back-up buyer is to sign a release on all Contingencies by COB today. We are doing this under duress and the Seller will be provided a cover letter stating or suggesting our disagreement with the demand while acknowledging our compliance.
Regarding the Backup Buyer...
The Seller's Agent indicated during the offer process there was a backup buyer.
The Seller's Agent indicated after ratification the competitive bidder was an unrepresented buyer he assigned to another agent in his office for contract offer and transactional support to avoid acting on both sides of the transaction (I don't believe he could have worked both sides legally if he wanted to, but unsure of CA laws)
The Seller's Agent indicated after ratification that the Backup Buyers loan application was being run in parallel with our inspections so if we ever felt we wanted out of the transaction we could do that without any guilt or penalty (Seller's Agent was constantly focused on our emotions and a desire to convey his transactional control as opposed to putting the attention on our buyer kick outs we had gained via the purchase agreement and as equitable title holders in the transaction)
This property is being purchased as a primary residence but it also has rental income and operating income that we find valuable.
If this was not a unique property with unique features and value that could be easily found in the marketplace we would not be choosing this course of action.
We are willing to accept the defects and flaws we have identified this far with a hope / expectation of financial correction via legal action after the fact.
Our plan as of now is to pursue legal action for financial correction after the transaction has completed.
The basis for the claims would be negligence, conspiracy to commit fraud, fraud, coercion and whatever else may apply.
We'll rely on advice of litigation attorneys to make a final decision on the pursuit for correction.