Past Water Intrusion Case Law…

Disclose It!

Should you disclose a prior flood? What if the Disclosure Form doesn’t specifically ask about prior insurance claims? Well, luckily for us there is a recent case that may give us some suggestions.

In Lober v. Passick, 327 So. 3rd 298 (2021), the Seller experienced a flood several years prior to listing the property for sale. In Lober, the parties executed an As-Is Contract. Upon noticing that the home smelled “musty” and “dank,” the listing agent responded that the smell was attributable to “the property being unoccupied and the air conditioning calling for a higher temperature”.

Importantly, the Seller’s disclosure form indicated that the property “had not been affected by any past or present water intrusion issues”.

Can You Guess Where This Is Going?

After the expiration of the Right to Cancel in the Contract, and approximately 48 hours before closing, the Buyer learned from his insurance agent that the property suffered a significant water intrusion loss several years prior, resulting in a significant settlement paid by The Hartford for resolution of the flood claim. This seemingly was going to raise the Buyers insurance rates.

Accordingly, the Buyer refused to close and the Seller later filed suit. After a lengthy trail and appeal, the court ruled that an issue of material fact existed as to the impact of the flood on the value of the property.

The Ruling – It Mattered. 

 The question for the court was whether the flood from several years prior was a latent material defect affecting the value of the property. The trier of fact (judge or jury) determines whether the water intrusion affects value under Johnson vs Davis (link to 5/29/22 prior article). The court in Lorber stated:

“…Buyer testified that the home was worth considerably less having suffered a prior flood. Even assuming the damage was fully repaired and not discoverable, an issue of material fact exists as to whether such an event affected the property’s value”

Practice Point:  Disclose present and past water, termite, mold, radon, roof and any property event that may affect value. Increased insurance premiums have raised this issue with several closings. 

What Can We Learn From This Case? 

To be safe, the Seller should disclose most things that happened during their ownership (the NABOR or Florida Realtors disclosure forms can help).  The Seller could also supplement these forms with copies of all paperwork related to the event (insurance claims, reports, proposals, invoices, insurance information, minutes etc.).

Lessons For The Realtor?

As the Listing Agent, I would also avoid making definitive statements on marketing materials or in response to Buyer questions. Instead, I suggest that you review the disclosures with your Seller and ask follow up questions about insurance claims, floods, appliances, and contractors. These conversations could spur additional memories and allow the Seller to better protect against making a mistake. These steps could help you all avoid lawsuits, failed closings, ethics complaints, and substantial settlement payments to Buyers.

And If You Need Some Help? Call us and let us help you and the Seller make the right decisions. We offer free consultations for listings. 

Thank you again for all your referrals. We truly enjoy working with you and your customers. We try to help. Contact us with any questions.

Donald Ross, Attorney
Ross Law | Ross Title