BUYER BEWARE: There Are Consequences To Ignoring Your Inspection Report

Paying attention to small details is critical when purchasing a new home. It turns out it is just as important when suing the person who sold you your defective home. In addition, those pesky inspection reports you pay for are not useful just to haggle down the price, they start the clock running on your future claims against the seller.

In Vera v. REL-BC, a homebuyer sued the seller and various related parties on the ground that they had failed to disclose certain defects in the home she purchased. Unfortunately for the buyer, she filed the suit three years and three days after she closed escrow. The sellers successfully moved for summary judgment on the ground that the suit was barred by the three-year statute of limitations that governs fraud claims.

The buyer appealed on the basis that her complaint contained a cause of action for breach of contract, which carries a four-year, not a three-year, statute of limitations. But the Court of Appeal rejected that argument. It held, instead, that the gravamen of the buyer’s breach of contract allegations was that the sellers had failed to disclose and misrepresented defects about the property. Because the breach of contract claim was based on an alleged “fraudulent breach of a contractual duty to disclose material facts about the condition of the property, [the buyer’s] claim is subject to the [three year] statute of limitations in section 338(d).”

The buyer attempted to save her suit by arguing that she did not “discover” the defects until after escrow closed, which would presumably have put her within the three-year window. The Court was not having any of that. Each defect about which the buyer was suing, the Court of Appeal found, was identified in the inspection report the buyer received prior to purchasing the property. And even if the buyer was not on notice about every defect over which she was suing, she was still barred. “[E]ven if [the buyer] had no knowledge to trigger a duty to inquire into one of those specific misrepresentations, her grounds for suspicion that Sellers had made several other serious misrepresentations nevertheless started the running of the limitations period.”

To add insult to injury, the buyer was not saved from paying the seller’s attorneys’ fees just because the entity was dissolved before the suit. The Court found that because California’s Corporation’s Code mandates that dissolved LLCs continue to operate for the purposes of “prosecuting and defending actions by or against it in order to collect and discharge obligations,” they can also be reimbursed for successfully defending an action.

So next time you buy a house, pay attention to your inspection report. And have your attorney pay attention to the calendar.