Caveat emptor

The Nevada Supreme Court last week upheld a basic consumer commandment: Let the buyer beware.

Its ruling stemmed from the 2002 sale of Judy Nelson’s Mount Charleston cabin to Scott Heer. The home had been flooded four years earlier when a pipe broke. Ms. Nelson’s insurance carrier covered the water damage, and when she listed the cabin for sale, she did not disclose the mishap or the repairs.

Mr. Heer first learned of the water damage when, upon closing the sale, his homeowner’s insurance policy was canceled. The insurer cited Ms. Nelson’s water damage claim as grounds for the cancellation. He was offered a new policy — at a higher premium — with no coverage for mold or fungus claims.

Mr. Heer had the property inspected several times prior to purchasing it, but not by a mold specialist. An environmental inspector subsequently found elevated levels of mold in parts of the cabin, although a thermal imaging scan by a general contractor did not reveal evidence of mold. Nonetheless, Mr. Heer sued Ms. Nelson, alleging breach of contract, breach of good faith and intentional misrepresentation for failing to disclose the water damage that was fixed.

State law requires anyone selling a residence to disclose known defects or damages that could affect the value of the property. Ms. Nelson maintained she didn’t report the broken pipe and repairs because she didn’t know about the possibility of mold existing in her cabin.

Although Mr. Heer could not prove that the elevated mold levels resulted from the water damage that had been repaired four years earlier, a Clark County jury awarded him more than $361,000 in damages. A judge later reduced the award to almost $280,000.

The Supreme Court threw out that judgment on July 26, clarifying that home sellers can’t be punished for failing to report deficiencies they weren’t aware of. The burden of sniffing out such deal-breakers is on the buyer.

Caveat emptor.

For the vast majority of Americans, buying a home is the biggest financial decision they ever make. Such a commitment requires a great deal of due diligence. Yet most buyers refuse to take simple steps to limit their liabilities.

The country’s current subprime mortgage crisis was caused, in part, by high-risk borrowers who failed to shop for better loan terms, then failed to read the fine print that outlined how their payments would eventually rise to levels they couldn’t possibly afford.

Mr. Heer could have avoided this legal mess had he hired a mold inspector or contacted his insurance carrier prior to closing escrow.

The high court got this one right.