Flooding and Real Estate

St. Louis and nearby counties were hit by three rounds of flooding in July and August 2022, including a record-setting 9.07 inches of rainfall, breaking the previous record that had stood since 1915. Flash flooding submerged roads, swept away vehicles, and destroyed or damaged enough businesses and homes to meet the threshold of a FEMA federal emergency.

 If you’re a realtor representing a buyer or a seller of a home, you might be wondering about your clients’ obligations and responsibilities relating to flood disclosures now and into the future. Here are a few things you need to know. 

Sellers’ disclosures 

Sellers are obligated to disclose all known material facts about the property in order to limit liability. This is true even if a residential property is being sold in “as-is, where-is” condition. 

While Missouri has little statutory guidance in terms of what must be disclosed – and nothing about the condition of a basement or potential roof leaks – being thorough in disclosures can help protect sellers in the event that issues arise during the sales process and even after the contract has been completed.

For example, if your seller has owned their home for ten years, but it has flooded for the first time during the July/August 2022 rains, they should (and really must) disclose this fact to prospective purchasers. If an insurance claim has been made, for flood damage or otherwise, this also should (and really must) be disclosed.  If there are mitigating circumstances, such as flooding being due to a window left open, sellers can also note that fact too – as support for the Seller’s position this was a one-time event unlikely to reoccur in the future. 

While the buyer’s home inspection will shift some of the burden to the buyer, the safest way for the seller to protect themselves against liability or second-guessing from buyers is to proactively disclose an issue. The more you disclose, the more protected you are after closing. 

When deciding what to disclose, sellers can use these two informal “tests”:

• If they were the buyer of the property, would they want to know about a particular defect or set of facts? If so, the seller should probably disclose such information. 
• If they have to ask a broker, attorney or friend about whether to disclose an issue, then it should probably be disclosed (i.e., the facts at issue were significant enough to catch the seller’s attention; thus, such facts should probably be disclosed). 

Remember that sellers are only required to disclose what they know or can foresee – they’re not obligated to anticipate worst-case scenarios such as record flooding. 

If the sellers have just listed their property and flooding occurs, they can provide an updated set of disclosures, while also noting any potential damage and whether it is being remedied. If a contract has been signed, the seller will be responsible for returning the property to the condition it was in upon signing, unless other terms, such as a price reduction, are agreed upon.  

 However, depending on the extent of the damage, the buyer may still be able to walk away from the contract, citing that the current condition of the property does not reflect the condition of the property when the contract was signed.

 Buyers’ responsibilities

In general, when a property goes under contract, the burden of liability remains with the seller, who must maintain insurance on the property until the contract is completed. However, if something like record flooding occurs during the contract negotiation period, and the property has been materially changed or damaged, the buyer generally has the option to opt-out of the contract, even if the situation can be remedied. In this situation, your clients should first request a mutual release of the contract from the sellers, using the material change as the reason. If the seller rejects this request, they should then consult with an attorney. 

Your buyers should always opt for a thorough home inspection, and if possible should be present for the inspection as well. If the house is in an area known to be affected by flooding, be vigilant about looking for signs of water damage. Bubbling, warped or spongy paint can indicate water damage, as can dark staining, depressions or damage to wood or flooring. Musty odors can also signal water intrusion. Be mindful that in some cases such damage may have been covered up – take special note of areas with fresh paint or patching, especially if they’re in areas likely to have been affected by water damage. If you suspect flooding but nothing is mentioned in the seller’s disclosures, you can also run an insurance claims history on the house to see if any claim against flood damage has been made.

If you’re representing buyers who have recently purchased a St. Louis home and have experienced basement flooding or roof leaks due to the rains, have your buyers document the issue through both note-taking and photographs. They should then have experts assess the situation and obtain bids on what it might take to remedy the issue – but not proceed with major repairs until they’ve sought appropriate legal advice.     

That said, even if your buyers plan to take the issue back to the seller in the form of a claim, the buyer is still responsible for preventing further damage to the property. The best approach is to document, gather multiple bids, take reasonable steps to stem the damage, then seek legal advice about how to proceed. 

For more information on sellers’ disclosure responsibilities, or for details of legal experts who may be able to provide advice regarding affected properties in the wake of the historic St. Louis floods, talk to the team at True Title.