Water Problem Was “Material Defect” Requiring Disclosure

The Iowa Real Estate Disclosure Act (Iowa Code §558A) requires a person transferring real estate to disclose physical defects on the property in writing. A seller is liable for the economic damages a buyer suffers if information relating to the defect was not communicated and the damages are related to the undisclosed defect.  However, the buyer must establish that the seller’s failure to disclose was intentional. 

In this case, a residential home buyer discovered severe water drainage problems on the property after the real estate closing. The seller had completed the mandatory real estate disclosure statement and had indicated no structural damage or physical problems relating to drainage, flooding, or grading. However, soon after taking possession, the buyer noticed that after a heavy rainfall, water accumulated in her backyard, resulting in standing water for several days at a time. 
The buyer brought a small claims case (the dollar amount in dispute was under $5000) against the seller for the cost of repairs and installation of catch basins and drain tile to remedy the drainage problem. The magistrate judge found in favor of the buyer, awarding her over $3000 to fix the problem. Since small claims proceedings are generally not recorded, the only record of the proceeding was contained in the magistrate judge’s notes. 

The seller appealed to the county district court. The court determined, based upon pictures submitted as exhibits by the buyer, that the standing water was not a condition that a seller would “in good faith believe was of such nature or importance to have required that it be disclosed.” Thus, the buyer was forced to fix the problem herself. Dissatisfied with this outcome, the buyer appealed the case to the Iowa Court of Appeals.  The appellate court concluded that the standing water was a longstanding problem and rose to the level of a “material defect” which should have been disclosed as a matter of law. Since the seller had “actual knowledge” of the problem, it should have been disclosed.  Fox v. Clark, No. 9-386/08-1555, 2009 Iowa App. LEXIS 688 (Iowa Ct. App., Jul. 22, 2009)