Tacoma requires sewer line inspections before home sale, or major remodel…but why (or more to the point, why now)?

This article outlines an interesting requirement that the Tacoma city council passed that will take place in October of this year. In short, before any home can be sold or undergo significant remodeling, their must be an inspection of the sewer lines.

The reason is outlined in this article from last week, and basically states that older private sewer systems are allowing rainwater to get into their lines (probably due to degradation). As a result, the public sewer treatment systems get overloaded and can cause raw or almost-raw sewage to seep into the streets and sometimes directly into commencement bay.

The natural consequence of this requirement is that that home sales will suffer. Obviously, this is because in the current market buyers have most of the leverage. If a seller finds there is a problem in the sewer line, he may have to repair it (likely a very costly endeavor), or may have to reduce the price on the home significantly. Worst of all, the seller may simply lose the sale altogether.

The real question is why now? Does the City of data that shows this is an urgent need? While we are all sensitive to environmental concerns, I would hope that the government is trying to also be sensitive to their constituency. Given the current housing climate, significant requirements placed on home sales ought to be reserved until more robust times.

A Claim for Rescission Based on Misrepresentation Survives the Economic Loss Rule and Alejandre

Division Two of the Court of Appeals recently issued an opinion on yet another suit for negligent misrepresentation and fraud by the purchaser of a home against the seller. Jackowski v. Borchelt, 151 Wn. App. 1, 209 P.3d 514 (2009). With two notable exceptions, the opinion predictably follows the precedent established by the Supreme Court in Alejandre v. Bull, 159 Wn.2d 674, 153 P.3d 864 (2007).

Architecture_frameworkJackowski confirms that the economic loss rule holds a party to its contract remedies and affirmed dismissal of the purchaser’s negligence claim against the seller. The opinion further affirmed dismissal of the purchaser’s fraud claim for failure to disclose that the property was in a landslide area where a reasonable inspection prior to closing would have disclosed the landslide risk. Each of these results seems obvious based on Alejandre. The decision therefore underscores a purchaser’s need to either perform a thorough inspection prior to purchasing a home or to insist upon contractual terms detailing the seller’s responsibility for representations as to the condition of the home (or both).

Jackowski dealt with two issues that were not addressed in Alejandre, though: the purchaser’s claim for rescission and claims against the real estate agents involved in the transaction. Jackowski successfully argued that the economic loss rule applies to economic damages, not to equitable relief. Division Two ruled that although the economic loss rule bars recovery, rescission is avoidance of a contract, not recovery. Accordingly, the purchaser’s claim for rescission based on negligent misrepresentation was not barred as a matter of law, despiteAlejandre and the economic loss rule.

Similarly, the economic loss rule did not apply to bar the purchaser’s statutory and common law claims against the real estate agent. The economic loss rule bars tort claims for losses suffered as a result of a breach of duties assumed only by contract. Alejandre, 159 Wn.2d at 682. However, the real estate agent had duties to the purchaser based on common law and on statute (specifically, RCW 18.86), in addition to any duties assumed by contract. The statutory and common law claims were not barred by the economic loss rule, and those claims were improperly dismissed on summary judgment.

After Alejandre, the legal prospects for home buyers who had been the victims of negligent misrepresentation were bleak. The standard contracts used for the majority of residential sales provided no relief for issues with the condition of a home, and it is never easy to prove fraud or fraudulent concealment, even if there is some indication that it may have occurred. The opinion inJackowski might give buyers some hope. It is at least possible to ask for rescission of the contract, and there is a chance of recovery against real estate agents involved in the transaction. Of course, the best advice for buyers is still to take diligent steps prior to closing, rather than to rely on the tenuous claims that may be available to them post-closing.