Home inspection for home owners insurance revealed damage my inspection and my lender's appraiser did not see

Question

I recently bought a house in Iowa. I hired a company to inspect the home, they found a few minor things but nothing major. My lender had an appraisal and they didn't note anything either.

I purchased home owners insurance with a large insurance company. After the policy started they hired another company to perform a home inspection. Their inspection found major damage to the foundation and they cancelled my policy until that is repaired.

What should/can I do? Also, I am liable for all repair costs?

Answer 1

The seller could be liable, if they knew about the issue and didn't disclose it, but it can be hard to prove they knew.

The inspector could be liable, but many inspection agreements are limited to what's visible, and include language that attempts to limit liability to the cost of the inspection. So, if prior occupants possessions were concealing the damage at time of original inspection it'd be hard to claim negligence. The language of the agreement is key.

Courts have found inspectors not liable in cases where the damage was not visible, when the agreement was for a visual inspection, they've also upheld the limit of liability clause that many inspection agreements include.

I've never had an inspection done that didn't include exculpatory language and limit of liability, but there are definitely plenty of judgments against inspectors. So you could be on the hook, but it may be worth pursuing legal action if it seems like the inspector should have spotted the damage. I didn't find any laws specific to Iowa that would impact this, but I'm no lawyer.

I would just weigh the cost of repair with the potential for piling up some legal fees. Consider how likely it is that the previous owner knew about the issue, and take another look at the inspection agreement to consider if the inspector didn't live up to his agreement or was negligent.

Here's some case history related to inspections: Inspection Legal Case Library

Answer 2

When reading the responses, it seems like everyone is reactionary but there are some good points made. I will say that I am answering this question as a home inspector and previous to that worked in the insurance industry as a Loss Control consultant. Also I am in California but inspections and insurance carriers are similar.

First the major damage referred for repair is vague in your description. I can think of so many possibilities from crumbling, cracking, water intrusion, rotation to name a few. I would hope the insurance representative has pointed to it and showed it to you and you agree it is major or is it just something talked about on a report. Most people are not qualified to evaluate foundation but when it is major, I would think we would all be able to understand it when it is pointed out.

Now going back to when the house was purchased, was the area where the damage is, was it some how concealed? Basement full? Was that area cleared prior to your purchase and did you walk through? So could the home inspector have seen it or was it concealed? You might also talk to neighbors to see if the previous owners had discussed any foundation concerns. Neighbors have been good sources of information to me in the past.

The reply asking why the insurance company inspected the house is a good one. I know from my experience that this may be completed for high value homes and homes that had previous history of claims. Does either of these fit your house?

Lets also consider the qualifications of the home inspector and the inspector for the insurance company. As I said above not everyone is qualified to evaluate foundations. After becoming a home inspector, I realized how little I understood for some items like foundations. I have personally seen people improperly call out problems that were not or were not significant. That does not mean I am siding with either person.

How would I suggest you proceed? Attorneys are not the first step. Call your original home inspector to come back out and look at this finding. Many inspectors are going to want to know what is happening and most contracts state you need to inform them if there is a concern with their inspection. Second, considered getting an third opinion. That will give you better understanding and if you ever need to go down a legal or arbitration route. You can hopefully discover how big the problem is or is not.

If there is a confirmed problem, your real estate agent should be consulted. Many larger real estate firms have in-house legal counsel that may be able to help understand what your options may be.

As I suggest here, there is a little investigation that may give better clarity.

Answer 3

I would talk to a local attorney and see what your options are. Inspectors are human and can have differing opinions on severity, but it may also be something that the first inspector missed.

Not all areas allow you to sue an inspector, but if it's something that you (or your attorney) can argue should have been caught you might have some recourse against the original inspector.

Appraisers don't generally look for that type of structural defect. If something is blatantly obvious they might consider reducing the value, but they're looking more at the general condition of the home (peeling paint, signs of mold, etc.) to compare it with other recent sales.