Please help us...Will we have grounds to sue for nonperformance?

[JimmyJazz4]

What is the name of your state? North Carolina

We are in Franklin County, NC.

Hello and thank you for this forum. Please forgive for the length, but this matter is keeping us up nights and we don't know what to do at this point.

My fiance and I purchased our new construction home 2 yrs ago in a rural area of NC. It has a bonus room over the garage. At the time of purchase the bonus room had been framed, floored with plywood, wired for electric, cable and phone, had a smoke alarm and light fixtures. In order to finish the room, insulation was needed, as well as drywall. We puchased the home with the bonus room as it was.

We finished the room. (My fiance was a professional carpenter for 15 years).

We are now under contract to sell our house, with the contigencies being that 1) the buyers (a married couple in California who are purchasing the home for their son and his wife and children to live in) are able to refinance their current home and obtain a cash out, and 2) that the home inspection is satisfactory and any requested repairs are made . The final contingency is that 3) the home gets a termite inspection.

re: 1) We have been told the buyers have received the funds from the refinance and we are still waiting for proof of funds (they have gone past the date for when they are supposed to send us proof that they got the loan).

re: 2) The home has been inspected and passed inspection with flying colors. There were three minor repairs requested which have been completed.

re: 3) We are waiting on the termite inspection and do not expect any problem with passing it.

Here is the current problem:
The buyers are now saying that they want 'permits' for the bonus room. It seems they are
A) unable to get insurance from their preferred insurance company because they told the insurance company that the bonus room was "unpermitted" (which is not the case and will be explained below), and
B) because they think my fiance installed the electrical wiring in the bonus room and they are concerned as to whether it's safe.
As I wrote above, the bonus room was wired before we purchased the home. We have pictures of the room before we started work on it (which shows the wiring), pictures as we were working on it, and afterwards. I found the summary report from when we had the home inspected when we purchased it 2 years ago, and in that summary the inspector referred to the exisiting wiring in the bonus room, which is evidence the wiring was there.
[Note: the real estate agency the buyer is using is the same agency we used when we purchased the house. The real estate agent who sold us the house (not the same agent for the buyers) owns the agency and is aware there was wiring in the house before we purchased it. She hasn't done anything to help us with this matter, which may or may not have to do with the fact that we originally listed the home with her, it didn't sell because of her inflated suggested listing price, and we changed to another real estate company and went under contract within 3 weeks.]

I visited the county permit office and the county inspection office yesterday. The county has jurisdiction in my neighborhood. When I told the representative in the permit dept. the above re: pre-existing wiring and that we finished the room, she pulled up our house records on a computer and said that our residence was considered "Finished Final" as of June, 2005, including the bonus room. She said she can't issue a permit because it's considered finished.

I found out we have been paying property taxes on this room since we purchased it. The county has considered this livable space the entire time.

The supervisor at the county inspection office told me there is nothing the county can do for us. If the buyer is "demanding" (his word) a permit, the best he can do is to suggest us to hire an engineer to look at the room (and maybe require us to open up the walls for inspection and seal them back up). Then the engineer can write a letter to the county inspector saying the room is up to code. Then the county inspector will write a letter saying the room is OK. No permit can be issued, as permits already exist.

Getting the room permitted (even though the county already considers it to be permitted)or inspected for electrical safety was not a contigency in the original contract.

The buyer has been made aware the room was "finished final" in 2005 including the bonus room. We have reason to believe the buyer's agent is not telling the buyer everything, though, and would very much like to speak with the buyers directly, which we know is supposed to be a "no-no" in the real estate world.

My questions: 1) Even though it was not in the offer to purchase and contract, can the buyer demand us to hire an engineer to look at the room and possibly force us to rip it open and then close it back up?

2) Can the buyer legally refuse to buy the house if we don't comply with the demand to hire an engineer?

3) The bottom line is: if the buyer backs out of this deal because we refuse to go through the expense and stress of hiring an engineer, can we sue the buyer for nonperformance of the contract? And if we can, what can we sue for, as this is a first for us. I've seen the word "damages" in the forum, but do not know exactly what that means.

4) Can we speak directly to the buyers because we believe they are not getting the whole truth (i.e: as in the "telephone game"---messages aren't being received in the same as they are being sent)

If we have to put the home back on the market now, in the fall, there is a very good chance it will not sell now because it's the off-season here. We are in a very rural area that does not get much traffic.
Any guidance/suggestions will be greatly appreciated!

[divgradcurl]

Two things.

First, if the buyer doesn't go through with the sale even though all contigencies are met, the usual remedy would be to keep the earnest money (the deposit). That's the whole point of the earnest money -- to have a simpe remedy if the sale goes south.

Second, if you do have a cause of action (check your documents to see if anything is spelled out), and the buyers are in California, there may be jurisdictional issues that might make it difficult or financial unviable to bring suit.

What does your contract say about this? What does your current realtor say about this?

[JimmyJazz4]

Originally Posted by divgradcurl

Two things.

First, if the buyer doesn't go through with the sale even though all contigencies are met, the usual remedy would be to keep the earnest money (the deposit). That's the whole point of the earnest money -- to have a simpe remedy if the sale goes south.

Second, if you do have a cause of action (check your documents to see if anything is spelled out), and the buyers are in California, there may be jurisdictional issues that might make it difficult or financial unviable to bring suit.

What does your contract say about this? What does your current realtor say about this?

Our contract reads: "In the event of breach of this contract by the Buyer, then all earnest monies shall be forfeited to Seller upon Seller's request, but such forfeiture shall not affect any other remedies available to Seller for such breach."

Our realtor is too meek to say anything with the word "legal" or "law" in it, unfortunately. She thinks we should do everything they ask us to do.
I don't know what you mean by "cause of action" but I don't see that term within the contract.

The Buyer apparently feels that this issue with the bonus room is something they can use to back out of the deal, if we refuse hire an engineer. This sale could go through without doing anything the Buyer is asking, but they want it done, or else no deal, we have just found out today that they have given us this ultimatum. We have also found out that an engineer will cut into our carpet, carpet padding and through the subfloor. He will also cut open the walls. We can't bear the expense of replacing a carpet, the house is being sold at a loss as it is...
Since this property can be sold without doing anything else (except satisfying the termite contingency clause), we feel the Buyers would be in breach if they backed out if we refuse to hire an engineer. We can't seem to get any clear cut answers about this from anyone, not even an attorney we met with today.
What to do???

[divgradcurl]

Since this property can be sold without doing anything else (except satisfying the termite contingency clause), we feel the Buyers would be in breach if they backed out if we refuse to hire an engineer. We can't seem to get any clear cut answers about this from anyone, not even an attorney we met with today.

From what you've written, it does sound like they would be in breach. Unfortunately, probably the easiest thing to do is simply let them out of the contract, keep the earnest money, and then try and resell the house.

You could potentially sue the buyers for any "losses" you suffer as a result of their breach -- any relisting costs, advertising costs, and the difference between the contracted sale price and what you end up selling it for -- assuming it sells for less that the current contracted sale price. The problem is this -- until you actually sell the house, you won't know what that "difference" is, so you will have to wait to sue until the house actually sells. Also, unless you can catch the buyers in your state (either catch them during a visit, or wait until they move to your state), you will probably have to sue them in California, and the costs associated with suing in California generally cannot be recovered in court.

[tranquility]

There may be an issue regarding disclosure of the permitting. Someone would have to review the facts to determine if there is a problem there or not. If the room is not properly permitted, and you didn't disclose it, since you completed the room you had knowledge of the problem and could be liable for damages. That does not mean the sale would necessicarily fail, it just means paying out damages.

There are some other problems related to an unpermitted room that could affect the sale itself, but it would take too much time to write out exactly why. Let's fact it, the other party is not going to let you get the deposit without a fight. An undisclosed unpermitted room would certainly give amunition for that fight. I'd try to negotiate with the other party to resolve the problem or see a local real estate attorney to advise you as to the legality of the room and your options.

Even if you aren't right, things are not going to go down easily as there does seem to be a problem. Negotiate or be prepared to fight.

[JimmyJazz4]

Originally Posted by divgradcurl

Also, unless you can catch the buyers in your state (either catch them during a visit, or wait until they move to your state), you will probably have to sue them in California, and the costs associated with suing in California generally cannot be recovered in court.

Unfortunately for us, the Buyers are buying the house for their son and his family to live in and aren't moving to NC. And again unfortunately for us, we are moving out of NC.
Sometimes it just doesn't pay to be honest and above board.....

[JimmyJazz4]

Originally Posted by tranquility

There may be an issue regarding disclosure of the permitting. Someone would have to review the facts to determine if there is a problem there or not. If the room is not properly permitted, and you didn't disclose it, since you completed the room you had knowledge of the problem and could be liable for damages. That does not mean the sale would necessicarily fail, it just means paying out damages.

There are some other problems related to an unpermitted room that could affect the sale itself, but it would take too much time to write out exactly why. Let's fact it, the other party is not going to let you get the deposit without a fight. An undisclosed unpermitted room would certainly give amunition for that fight. I'd try to negotiate with the other party to resolve the problem or see a local real estate attorney to advise you as to the legality of the room and your options.

When we purchased the home, all the framing and wiring (including switch plates and smoke alarm) was in the bonus room, operative, and, we thought, inspected and permitted by the county, as this was a new construction home. We were unaware that putting up insulation and sheetrock needed a permit until this matter was brought up. There was no nondisclosure on our part---we did not know we had anything to disclose. I don't know if "ignorance of the law is no excuse" applies here or not.
In the next county, permits are not required if renovations (non-structural) are under $5,000. The county our home is in requires a permit for absolutely any type of work done inside of a home. We have lived all over the country and, honestly, this is the first time this has ever come up. We honestly thought the county OK'd the wiring and framing, since this was new construction and had to be looked at by the county (or so we thought)...