In 2011 in Lakeshore Gardens several homes were purchased for low prices and then the new owner (the flipper) had work done on them and resold the home for a higher price. What are the legal dangers in doing a flip?
- Usually the “flipper” has more knowledge of real estate and is considered by the courts as an “experienced investor”. Therefore when selling a flipped property to an older person who is not experienced, the courts expect the “flipper” to make full and complete disclosure to the new buyer.
- The “flipper” must by law disclose everything done to the home since their purchase.
- The “flipper” must disclose everything negative they might know about the house – from the home inspection done before they purchased the home to items discovered while they own the home.
Let me give you some examples of areas where a “flipper” could get in trouble:
- Installing Trex decking over an existing deck that has wood damage – and not disclosing that the older deck that is under the Trex is not in good condition.
- Installing or repairing a deck railing not up to current building code.
- Repairing pest (termite – dry rot) damage and covering it with carpet – and not disclosing the repair.
- Any electrical repairs/replacement without a permit.
How can a “flipper” protect themselves?
- The California Association of Realtors has standard forms that allow the seller to fully disclose the condition of the home and any improvements the seller has made. The form should be completed on every transaction and is called Seller Property Questionnaire.
- Keep receipts for all work done by licensed contractors and for supplies that they purchased themselves. Copies should be given to the new buyer.
- ALL work that is done must be disclosed. Period. It does not matter if the “flipper” is a contractor or not. ALL work must be disclosed.
How much trouble can a “flipper” and their Realtor get into?
The buyer has 4 years AFTER they discover a defect or improper repair that was not disclosed to file a lawsuit requesting that the “flipper” make the buyer whole. If the home was sold in 2011 and a non-disclosed defect is discovered in 2016 the buyer has till 2020 to file suit.
Can a person “flip” a mobile home? YES – with full disclosure. Make sure that you work with a Realtor who keeps up on the laws and requires you as a seller to do full disclosure.
These same disclosure laws apply to every Seller – but a “flipper” usually has purchased a home that needs a lot of improvement – and therefore many more items to disclose.
Next week I will be discussing decks and railings. What are the current building codes if you make any repairs or replace your current deck and railing?
When you think of Real Estate – think of me, Steve Davis – your neighborhood professional.