When the Report Speaks for Itself

Since this blog launched in early December, I have received a steady stream of correspondence from home inspectors asking my opinion on a wide variety of topics related to home inspections. Frequently, these inquiries inspire a blog article. So keep them coming.

A while ago, I got an interesting question from a reader about an inspection conducted for a young couple. The mother of one of them was financing the contemplated home purchase and was a looming presence during the home inspection and the inspector had heard her opine that she didn’t like the house because it was “too small.” The couple was represented by a buyer’s agent and the inspector knew both the buyer’s agent and the seller’s agent professionally.

Afterwards, the inspector discussed the findings in detail with the couple who seemed to find the discovered deficiencies manageable and were allowing how they would go about rectifying them. That was on Friday.

The following Monday, the inspector got a call from the listing broker who was considerably put out because the buyer’s agent had just informed him that the couple was backing out of the deal, according to the buyer’s agent, because they were claiming that the inspection had uncovered defects that could lead to a catastrophic fire. The inspector then told the listing broker that there was nothing in the inspection report that would remotely imply anything of the kind. To make the listing broker’s confusion even further pronounced, the sellers had agreed to correct several of the discovered deficiencies and drop the price further.

Well, you don’t have to be Ellery Queen to ascertain why these buyers were defaulting on their agreement. And so the inspector told the listing broker about the mother-financier’s dislike of the house.

And the questions that the inspector had were: did this disclosure breach a professional confidence and is there a better way to handle such a situation in the future?

The answers are: “Yes” and “Yes”.

If the sellers were going to be repairing certain uncovered defects, as well as reducing the price, it is a mortal certainty that the listing broker already had a copy of the inspector’s report. They were not taking those measures in a vacuum.

So there was likely no breach of confidence in telling the listing broker that the catastrophic fire potentiality was, at best, fanciful. You can’t betray a confidence that doesn’t exist. So no harm, no foul there.

The disclosure of the mother-financier’s audible musings of displeasure as a putative extraneous cause of the deal-breaking, however, was, methinks, a bridge too far and could engender a torrent of legal unpleasantness for the inspector’s clients should the sellers be so inclined, including a suit in equity for specific performance. At a minimum, the buyers could forfeit their deposit. Not that I have any sympathy for them. The time to discover a property’s dimensional insufficiencies is well before making a purchase offer.

If a similar situation presents itself in the future, a prudent inspector should first ascertain whether the opposing party or his representative has already seen a copy of the inspection report and from whom. Then simply say “The report speaks for itself.”

My Schedule for the Future Could Involve YOU

A couple of weeks ago, I presented the Law and Disorder Seminar at the West Virginia Association of Home Inspectors (“WVAHI”) Winter Workshop in Flatwoods, West Virginia pursuant to an invitation that I had received back in November from Sam Wood, an inspector that I have known for quite some time.

That prompted this email request from reader Robert J. Stawicki of Medina, NY:

“Could I get your schedule for your Law and Disorder seminar. I tried to catch the Flatwoods one but could not get directions or any other info. Thank you in advance.”

Presenting the Law and Disorder Seminar is one of the most enjoyable aspects of my practice. I like traveling to different parts of the country that I might not otherwise get to, meeting home inspectors from around the nation, pressing the flesh, taking in the local scenery and sampling regional delicacies. What I do not like is all the work involved in setting up the seminar only to have to cancel it because not enough folks registered early enough to justify the expense.

So I have decided to stop scheduling live seminars because doing so was taking up too much of my time often for too little return. Instead, I am making myself available to regional, state, and national associations and National Franchisors as a featured speaker at their monthly meetings or their summer, fall, winter, spring or semi-annual or annual conventions for a fee of $1,000 out of which I will cover all of my travel expenses.

I will be presenting the seminar at the Florida InterNACHI chapter in Sarasota, Florida on April 30, 2011, pursuant to a similar arrangement. If your organization would like to schedule a live presentation of the Law and Disorder seminar for its members, email me at homeinspectorlawyer@gmail.com or call me at 215-854-6444.

I am also in the process of digitizing the seminar on a series of videos which will be accessible on line via subscription and which you will be able to view in the privacy of your own home, as often as you like.

The Costs of Defending a Lawsuit (Part 2 of 2)

One of the more unpleasant experiences in life is answering your door and finding the county sheriff or one of his deputies on your doorstep asking if you are one of the defendants named in the copy of the Complaint that he is holding, a Complaint that has been filed by one of your home inspection clients who is claiming that you failed to uncover certain defects during your inspection and that lapse on your part is now costing him a lot of money to rectify.

This is especially disturbing when it is the first inkling that you have that this particular client had any beef with you whatsoever. This is, perhaps, the only time when no news is not good news. As I have written elsewhere on this website, while it is still possible for me to persuade the plaintiff’s attorney to voluntarily dismiss you from the suit, it is less likely when there has been a substantial calorie-burn on the attorney’s part. And it goes without saying, I trust, that it is impossible to do so once your insurance company has appointed defense counsel because their financial incentives are contra.

If voluntarily dismissal is thus foreclosed, you will soon discover that litigation is one of the most expensive endeavors known to exist. The problem with litigation in the context of a residential real estate transaction is that the aggrieved home buyer is operating in a target-rich environment. In the buyer’s mind, multiple parties could possibly be responsible for his troubles: the seller [in my experience, generally the most culpable because they so often do not disclose critical issues], the seller’s agent and broker, the buyer’s agent and broker and the home inspector and, if the inspector operates as a corporation, the inspector’s corporation.

With that many defendants, the Complaint itself is a megillah - multiple parties, multiple counts, hundreds of allegations. It can easily cost thousands of dollars just to respond to the Complaint. Then you have to respond to all the cross-claims that will surely be brought against you by other defendants.

Suffice to say that even the most routine matter is preposterously expensive. The more parties, the more expensive because you have to respond to all of their filings; serve them document discovery requests and respond to theirs; take depositions of the parties and their witnesses; defend your own deposition; and attend scheduling, settlement and pre-trial conferences. And you are charged for everything: travel, filing fees, copies, postage. All of that before you ever get near a courtroom.

Any wonder why insurance companies are so willing to throw you under the bus? And while that is often a win-win situation for them, it is always a lose-lose proposition for you.

They get rid of the case within your deductible or a multiple or two above it which they will recoup via surcharges on your subsequent renewals. You, on the other hand, a. are out your deductible [at a minimum]; b. have a scarlet letter “C” [for claim] on your chest; and c. will be paying hefty surcharges for a few years to a company that you are stuck with because their mishandling of your claim has made you persona non grata to every other insurer on the planet.

The trick is to get rid of the claim before it ever blossoms into a lawsuit, something I have done over 150 times in the last four-and-a-half years, including several cases where the first notice of claim was a lawsuit.

Fortunately, for home inspectors, there is a new insurer that is completely on board with my approach to responding to these ridiculous claims. For a quote visit: http://inspectors.locktonaffinity.com or call 800-803-9552

The Costs of Defending a Lawsuit (Part 1 of 2)

As a frequent contributor to online inspection forums, I regularly get private email from professional home inspectors seeking my opinion on legal matters. Recently a reader wrote:

"Joseph, So, absent an E&O policy, inspectors are exposed to the realities of defending a claim, which in 98% of the cases you have seen, are without merit. What do you estimate the cost to the inspector are to defend themselves, considering court costs, attorney, depositions, etc?"

Fortunately, not every claim involves a lawsuit. Most claims begin life as a complaint from a disappointed client. And most experienced business persons have had to deal with customer complaints at one time or another in their careers, and have no problem whatsoever rectifying a legitimate complaint to the customer’s satisfaction.

The problem arises when the claim is not legitimate, a condition that obtains in 99% of all claims against home inspectors. You read that correctly. In four-and-a-half years, I have seen exactly 2 legitimate claims.

When a claim is not legitimate, it must be resisted. Politely. But firmly. Even when, as is often the case, “legal action” is threatened. Caving in to illegitimate claims is a terrible business model, especially in an industry that generates so many of them.

When “legal action” is threatened should you not knuckle under to your client’s preposterous demand, you may receive a demand letter from a local attorney or a summons from your local Small Claims Court. If the latter, you can generally get the claim dismissed due to lack of jurisdiction, as I discuss elsewhere on this site and if you’ve been following my advice regarding Arbitration Clauses.

If, instead, the "legal action" threat manifests itself via a demand letter from an attorney, say a prayer of thanksgiving. Why? Because the attorney is not emotionally involved in the case. He’s financially involved in the case. And the minute he learns from me that there’s no case; that there are multiple defenses to the claim; that his client has no damages; and that the defendant will vigorously defend the claim, that is generally more than enough disincentives to prompt him to advise his client to move on with his life. And they generally do.

Unfortunately, many claims begin life as a fully formed lawsuit and the first notice that an inspector gets of the claim is when the county sheriff knocks on his door and serves him with a lawsuit accusing him and a multitude of others of having harmed his former home inspection client.

That’s when the expenses begin. That discussion, next time.

Thoughts on Thermal Imaging Devices and Visual Inspections

Joe - Could we get a legal view on the use of thermal imaging devices during home inspections.  A number of guys are touting the relative blindness of those not using them in an effort to promote their new "x-ray vision."

“My opinion? As with any extra-sensory equipment, from electronic induction moisture meters to gas sensors, this technology is subject to many variables such as quality, on-site conditions and, last but not least, the ability of the inspector to accurately interpret the data.  Further, I know of no precedent that requires a seller to act on these findings by allowing invasive follow up deconstruction to verify inside walls what was inferred by the inspector's report.

“Lastly, what added dimension of legal liability does the use of these devices open up to the home inspector?”

Many home inspectors have added thermal imaging to their menu of services in recent years in an effort to increase revenue in the wake of an inspection market devastated by the implosion of the underlying residential real estate market.  This development has been fueled by the precipitous decline in the price of thermal imaging cameras, a circumstance that has, itself, engendered a technological arms race among home inspectors that has tended to undermine the advantage and market hegemony of the early adopters and will, almost certainly, through increased supply and competition, erode the ability of practitioners to maintain pricing discipline.

In the Law and Disorder Seminar, one of the skills that I encourage home inspectors to acquire is the ability to manage the expectations of their clients as to what they can reasonably expect to learn about a property from a limited, non-invasive, visual inspection.  Most home buyers have absolutely no idea what a home inspection entails and to the extent that they do have an idea, it is generally unrealistic.  I sometimes think that some of them believe that you are not only going to be able to detect everything that is currently wrong with the property but also everything that has ever been wrong with it and everything that ever will be wrong with it.

And that is one problem that I anticipate that the widespread adoption of thermal imaging by home inspectors is going to exacerbate.  People’s already unrealistic expectations will become more so, especially if they have read some of the wildly exaggerated claims made about thermal imaging on many inspectors’ websites.

I do not believe that thermal imaging, in and of itself, will increase an inspector’s liability to a buyer, however.  It is still, after all, a limited, non-invasive, visual inspection that is being conducted.  If the thermal imaging reveals a reportable issue, take a photo of it and report it.

I can, however, foresee potential issues with a seller if an inaccurate interpretation of the data were to induce a buyer to abrogate an Agreement of Sale.  Or if the seller does do verification deconstruction on the basis of a false positive.

The real problem that I foresee with a widespread adoption of thermal imaging by home inspectors is mission creep.  Is thermal imaging going to become the new normal in home inspections?  And are you going to be able to charge more for it, if everyone is doing it?

Using a Written Agreement to Dismiss Cases in Small Claims Court

If you operate a business in the United States of America, sooner or later you are going to end up in Small Claims Court, either as a plaintiff trying to collect on a delinquent account or as a defendant defending against the real and imagined grievances of your customers. So it is important to understand how Small Claims Courts operate.

Small Claims Courts exist to alleviate the logjam of civil suits that would otherwise be adding to the existing avalanche of cases that already clog our courts by removing those cases where less than, say, $10,000 is at stake. Most of the litigants in these forums are not represented by attorneys, though by procedural rules, corporations must be represented by an attorney. Since many home inspectors operate their businesses through corporations, they should be aware of this requirement, lest they be defaulted for failure to defend.

Most of these courts also require that litigants try to come to some settlement on their own by submitting to a mandatory mediation process. As discussed elsewhere in this blog, home inspector defendants should be very wary of mediation because a. their clients seldom have a valid claim and b. if they have been paying any attention whatsoever to me, they have a signed pre-inspection agreement with the plaintiff that requires that any dispute arising from the inspection be brought in arbitration, thus rendering Small Claims Court - or any court, for that matter - an inappropriate forum for this dispute.

Once the mediation charade has concluded, the litigants will then appear before the judge to present and argue their cases. Your demeanor at this time should be that of the totally poised professional that you are.

When the judge takes the bench, he generally has no idea what the case is about and, since Small Claims Court Complaints are generally light on particulars, reading the Complaint is unlikely to enlighten him in any meaningful way.

He should then ask the plaintiff if he has an Opening Statement. An Opening Statement is designed to give the finder of fact - in this case, the judge - an idea of what the dispute is about.

Your plaintiff might say something like this: “Your honor, I hired Mr. Home Inspector to inspect the house that I was buying and two months after I moved into the house, the heat pump stopped working. I called a heating contractor and he told me that the unit needed to be replaced at a cost of $3500 and that this is something that Mr. Home Inspector should have discovered when he inspected the house. So, I’m suing to recover the cost of the new heat pump.”

Now, hearing this nonsense will very likely set your teeth on edge but this is when you need to summon every self-control mechanism in your arsenal of character traits. Let your client say his piece because it will likely be the last thing that he gets to say on this day and because you are going to be walking out of there very shortly.

The judge will then turn to you and say “Mr. Home Inspector, do you have an Opening Statement?”

Here’s what you say:

“I do, Your Honor. And while I obviously dispute Mr. Client’s version of events, I wish to make a preliminary motion to dismiss Mr. Client’s Complaint because prior to performing my services for Mr. Client, he and I agreed in writing that any dispute arising from the inspection had to be submitted to arbitration by the American Arbitration Association. Therefore, I move the Court to dismiss plaintiff’s Complaint due to lack of jurisdiction.”

The judge will then ask if you have a copy of the Agreement with you - which, I hope it goes without saying, you had better have - and ask to see it. Since you will have resourcefully placed a Post-it with an arrow pointing to the Arbitration Clause and another with an arrow pointing to the plaintiff’s signature on the Agreement, the judge should then ask the plaintiff, if that is his signature on the agreement. When he sheepishly admits that it is, the next thing you should hear is the judge dismissing the case and telling the plaintiff that he has to bring this claim in arbitration.

Please Mr. Home Inspector, Will You Pay For My Renovation (Part 3 of 3)

After getting an indefinite extension of time to respond to the Complaint and, thus, eliminating any possibility of a default, I wrote to the inspector’s insurance company to timely advise it of the claim.

I enclosed a complete copy of the Complaint, a copy of my letter to the Plaintiffs’ attorney that delineated all the defenses to the Complaint together with a cover memorandum that explained that the attorney wanted time to discuss the matter with his clients and expressed my professional belief that the plaintiffs would voluntarily dismiss the inspector from the lawsuit.

I also suggested to the claims manager that the insurer refrain from appointing counsel for the time being to give the seed I had planted in the plaintiffs’ attorney’s mind time to germinate. In my experience, decisions by opposing counsel to do the right thing can take up to a month during which time you generally want to leave them alone - no sudden moves - with a gentle status inquiry every week or so.

Also, in my experience, they eventually do conclude that keeping defendants, who do not belong there, in the suit is a really terrible idea for the following reasons: one, you will not prevail against them and, two, their pesky habit of poking holes in your case against them often has the altogether annoying consequence of weakening your case against legitimate defendants.

Alas, in this case, the insurer did not take my suggestion and immediately appointed defense counsel. A year-and-a-half later, the inspector recently told me, the case is still unresolved. He did advise me, however, that the defense attorney was very grateful to have had all of the defenses laid out for her.

Therein lies the difference between the claim response techniques that I have pioneered and the approach followed by the legacy defense bar. My interest lies in getting rid of the case, usually before it ever blossoms into a suit. Their interest lies in keeping it going once it does.

I’ll be very surprised if the perseverance of these unmeritorious plaintiffs is not ultimately rewarded.

Please Mr. Home Inspector, Will You Pay for My Renovation (Part 2 of 3)

So I wrote a rather lengthy letter to the plaintiffs’ attorney that explained in considerable detail exactly why he would be better off - and his clients would be immeasurably better off - without having the home inspector hammering away at length the manifold reasons why he was not responsible.

I first pointed out that the inspector had called out a lengthy litany of issues with the property, to wit: the roof was beyond its design life range and showing signs of deterioration; the gutters were clogged; the flashing was tarred; there was siding contact with the soil, a condition that could lead to the very issues of which his clients were then complaining; the exterior water had been shut off; there were settling cracks in the foundation; the toilet in the bathroom was loose; there were popped nails and tape separations throughout the interior; and efflorescence and condensation on the foundation walls.

Had any of the defects of which his clients were now complaining been extant and observable at the time of the inspection, I told him, they would have been reported by the inspector. That is the nature of a limited, non-invasive, visual inspection. One can only report what is observable at the time. Thus, the inspector was not negligent.

I then pointed out that his clients’ failure to follow up on the inspector’s findings and recommendations was, itself, negligent, a condition that would bar any recovery from the inspector.

I then explained that it could easily be demonstrated that his clients had lied about the termite “swarm”; that the video that he had magnanimously - if stupidly - included as an Exhibit to the Complaint not only completely exonerated the inspector but thoroughly impeached the credibility of his expert witness.

I also advised him that the claimed damages were vastly overstated and that the depreciation applicable to the forty-six year age of the home would diminish the damages to a de minimis level not worth crying about.

If that were not enough, I directed his attention to the fact that a recent and very well-reasoned lower court opinion held that the state home inspection licensing law had pre-empted all common law claims against home inspectors.

Finally, I advised him that even if the inspector had been negligent - which he had not been - and even if there were no recovery-barring contributory negligence, and even if his clients had actual damages, and even if a court had not ruled that the Home Inspector Licensing Law preempted his clients' claims, their recovery would be limited to the fee charged by the inspection.

Then I told him that, even though the case against the inspector was riddled with difficulties - the absence of negligence, the admissions by both the plaintiff and his expert that the damage was “hidden”, the contributory negligence problem, the contractual time limitation on bringing the suit, the recovery limitation, and the licensing law pre-emption - the case against the sellers had none of those difficulties. And I suggested that he drop the suit against the inspector and instead use the inspector as a fact witness for the plaintiffs against the sellers.

When I called the attorney after having given him a few days to digest the unwelcome news I had delivered, he seemed very amenable to doing the right thing and dismissing the claim against the inspector. He then requested time to “discuss the issues” with his clients and gave the inspector an indefinite extension of time in which to respond to the Complaint.

“Sure” I said, “take all the time you need.”


The result next time.