Can my buyers sue the sellers after closing for damage to the home?

QUESTION: I represent buyers under a contract to purchase. There have been some moisture issues discovered during our due diligence that we believe the sellers should have known about and disclosed. To make a difficult transaction worse, last night we had a terrible hailstorm and my buyers are concerned that the roof has been damaged. Closing is scheduled for the end of this week and my buyers are thinking they can simply close and then sue the sellers for misrepresentations and for any damage caused by the storm yesterday. I pointed out to my buyers that the Offer to Purchase and Contract (Form 2-T) expressly states that the seller is responsible for any damage or loss sustained prior to closing. How can my buyers best preserve their claims for these damages?

ANSWER: We encourage you to strongly advise your clients to speak with an attorney prior to closing. There are very real obstacles for buyers to sue sellers after closing. You have identified two distinct legal claims in your question. One appears to be a claim for negligent or intentional misrepresentation. This occurs when a seller fails to disclose a material fact that they should have known about or fraudulently tried to hide. The second claim relates to sellers failing to deliver the property “in substantially the same or better condition at Closing” as on the date the buyers submitted their offer to purchase. Each of these claims could fail under judicial scrutiny.

First, a claim for fraud or negligent misrepresentation requires the buyers to reasonably rely upon the representations made by the sellers. This may be a difficult burden for the buyers to carry if they are now aware of the truth and can no longer claim that they are reasonably relying on the false representations of the seller. In the best of circumstances, this type of claim is very fact dependent and is often left to a judge or jury to decide.

Second, while you are correct about the seller bearing the risk of loss until closing, the contract speaks directly to the options of a buyer when there is damage sustained. If buyers are dissatisfied with their due diligence inspections, or discover material damage like the hail damage to the roof, buyers may proceed to closing, negotiate repairs, or terminate the contract. Form 2-T notes that if there is material damage to the property and the buyers proceed to closing, they have a right to receive any insurance proceeds that the sellers are entitled to under their homeowners’ insurance policy. The North Carolina Court of Appeals has held that if there are no insurance proceeds, recovery of damages from the seller is not an option when the options are unambiguously defined in Form 2-T. Although your clients may be entitled to terminate the contract and receive a refund of the Due Diligence Fee and Earnest Money Deposit prior to closing, the following bold, capitalized language in Paragraph 4(h) should be heeded: “CLOSING SHALL CONSTITUTE ACCEPTANCE OF THE PROPERTY IN ITS THEN EXISTING CONDITION UNLESS PROVISION IS OTHERWISE MADE IN WRITING.”

Release Date: 3/28/2024

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