The foundations of our California dream home are rotting — do we sell now or sue the former owner?

Dear Moneyologist,

We finally bit the bullet and bought a house when we moved to L.A. two years ago. Hindsight being 20/20, maybe that wasn’t such a great idea. Our house was originally built in 1929, and sits on a hill with a lovely view in an up-and-coming neighborhood called Glassell Park. We bought the house from investors who marketed it as “fully remodeled” with new stucco, and hired a home appraiser to make sure there were no problems. Some details: Our house is 792 square feet on a 7,000 square foot lot, purchase price in 2015 was just over $ 560,000. Our mortgage payment, because I got a Department of Veteran Affairs loan, is $ 3,400 per month.

The new stucco on our house is cracking severely. To continue our fiasco, because of all the rain, our roof started leaking. The previous owner had patched the broken Spanish tile, instead of replacing it, plus other issues with the roof in general.

Kim in L.A.

We engaged a real estate attorney because the new stucco on our house is cracking severely. He came out with his licensed contractor to look at the house and found that the frame of the house is rotting, causing the house to move (remember, we’re on a hill). The foundation is post-and-pier and was supposed to have been fixed by the seller and was signed off by the L.A. city inspector. To continue our fiasco, because of all the rain, our roof started leaking. When we had the insurance company representative out, he told us that our roof needed work, because the previous owner had patched the broken Spanish tile, instead of replacing it, plus other issues with the roof in general.

 

So we are pondering what to do. Do we cut our losses and sell the house, with full disclosure of the problems? Houses like ours are selling for about $ 600,000 in this neighborhood, with little to no remodeling done. Or do we wait through the lawsuit, hope that we win, fix the house, maybe make an addition and then sell it, probably for upwards of $ 700,000 if we increased the square footage to 1,200. I have no idea how much it would cost to fix the frame, but from what the contractor said, we would have to lift the house, cut out the bad frame and rebuild the bad frame, which sounds expensive. Sometimes we wonder if buying a house isn’t just a money suck and scam to get people to take out big mortgages and pay interest rates, and we should just go back to renting.

Kim in L.A.

Dear Kim,

When I saw the reference to “new stucco” in your story I had that sinking feeling.

Stuccoing over the cracks is probably as common as papering over the walls. But you did your due diligence: You hired a home appraiser who missed some very basic problems; appraisers are often covered by insurance to settle cases such as this. And the fact that the previous owners were investors who were presumably flipping the property and actually had the gall to market that house as “fully remodeled” and, presumably, gave you a report of the work, which would give weight to your case. If the sellers knew of material misrepresentation, they committed fraud.

The flippers had the gall to market that house as ‘fully remodeled’ and, presumably, gave you a warranty of the work gives weight to your case. If the sellers knew of material misrepresentation, they committed fraud.

The Moneyologist

I say stay and fight, rather than cut and run. Even if you sell with full disclosure of these problems, and break even, you will go back to renting. (And it sounds like you would still lose the money, attorney fees and any taxes you paid before and after you bought the home.) Buying a home is a huge achievement and I wouldn’t let one bad experience or shoddy renovation deter you. You would regret that decision in 20 or 30 years when you would have had your mortgage paid off. You owe it to yourself to not let these flippers off the hook.

 

Your problem is not unique. Take heart in that. More homebuyers should be on their guard when buying flipped homes. Flipping reached levels not seen since 2007 in the first nine months of last year, according to data from ATTOM Data Solutions, the parent company of real-estate website RealtyTrac. (A home flip is a property that is sold in a sale for the second time within a 12-month period based on publicly recorded sales deed data.) Not to add to your saga, but some experts say post-and-pier foundation is more vulnerable to earthquakes.

This was not an elderly couple who didn’t know that their house was sliding down a hill and got conned by a shoddy construction company, these sellers were investors who (by their own admission) advertised this “remodeled” home and decided to hide their findings from you. It shouldn’t be hard to find the company that renovated your property and, if the investors did the work themselves, that would be even more damning in a lawsuit. It sounds like you love your home. Given that your lawyer is paid if he wins, give it six to eight months and let me know how you’re getting along. (Your home may have even added some more value by then.)

If this looks like a years-long battle, we can revisit the fate of your dream home then.

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