For a variety of reasons, such as a job change or change in financial circumstances, an owner may need to sell a home during a lawsuit. This can be a difficult proposition.
Full disclosure is required in any home sale. Like most states, Oregon requires that a seller disclose all known material defects. For example, sellers are required to complete a checklist disclosure form covering many individual components of the home, from title to underground tanks. Importantly, the standard form includes a catchall question: “Are there any other material defects affecting this property or its value that a prospective buyer should know about?”
When selling a home in the midst of a construction defect lawsuit, disclosure of construction defects is not only required, but often becomes the primary discussion point. Many owners believe when selling a home involved in construction litiation, they can simply assign the lawsuit recovery as part of the sale. Though a simple idea, this is actually quite complicated.
The original buyer of the home will likely have claims against a builder for breach of contract or implied warranties. After a sale, the new purchaser would likely have no contract rights against the builder, but rather would only have non-contract claims such as negligence. In addition, the sale itself may impact the strength of claims. Essentially, a buyer is agreeing to purchase the home with full knowledge of the defects, and may be negotiating a reduced price due to those defects. Liquidating the claim value during a sale creates a possible argument that the buyer has suffered only monetary losses rather than property damage or that the new purchaser should receive less than the full damages.
Sometimes owners want to assign claims to the new buyer, but assignments are risky, depending on the circumstances. Some contracts, for example, include language that prohibits assignment of the contract.
For these and other reasons, selling a home during the course of a construction defect lawsuit can be a challenging proposition. It can be done, but each person involved in that transaction should seek the assistance of counsel.