The breathless growth of Portland’s housing market has nurtured a growing income opportunity to developers who purchase homes for renovation and resale; so-called “house flippers.” Such homes not only provide potential profit for developers, but also provide turnkey renovations for home purchasers and improved aesthetics for surrounding neighborhoods. However, misconceptions about the flipping and sale process can spark disputes between developers and their eventual purchasers. Most of these troubles can be avoided through better contracting and more candid communication on both sides. The following are recommended steps toward reducing the risk of future problems, from the perspectives of purchasers and developers.

  1. Purchasers

Recently flipped homes offer the best of both worlds: old-home charm with new-home fit and finish. But that blessing is also a curse, because new renovations can mask undiscovered problems. Too many purchasers see beautiful finishes and promptly neglect the potential for hidden old-home problems. The purchase process – when done right – is more complicated for a flipped home than a new home. Several pieces of advice will help.

The first and best piece of advice is to know your contract. In the recent case of Shell v. The Schollander Companies, Inc., 358 OR 552 (2016), discussed below in a post by David Delmar, an owner sued for construction defects in a home she purchased when new. However, because hers was a contract for sale rather than a contract for construction, a different time limit applied. This distinction between a construction contract and a sale contract is far more critical with a flipped home. Purchasers tend to perceive the seller’s renovations as something akin to new construction and believe that new construction standards should apply. This is not necessarily true; a typical sale contract contains no obligation to perform construction services according to any particular standard. Moreover, the “as-is” clause could prevent a purchaser from asserting certain claims later.
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One of the most frequently asked questions either during the initial stages of a construction defect lawsuit, or certainly somewhere during the lawsuit, is “What if I want to sell my house?” This rather simple question unfortunately has rather complicated response that boils down to “That depends.”

Putting aside the issue of whether there are any lenders who will finance the purchase of the home, the seller has essentially two decisions to make: First, how much to disclose of the lawsuit and the allegations of defects? Second, what to do with the lawsuit itself?
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For a variety of reasons, such as a job change or change in financial circumstances, an owner may need to sell a home during a lawsuit. This can be a difficult proposition.

Full disclosure is required in any home sale. Like most states, Oregon requires that a seller disclose all known material defects. For example, sellers are required to complete a checklist disclosure form covering many individual components of the home, from title to underground tanks. Importantly, the standard form includes a catchall question: “Are there any other material defects affecting this property or its value that a prospective buyer should know about?”

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