Can property damage be a material fact even if the damage has been fully remediated?

QUESTION: I have a listing under contract, and the parties are in the Due Diligence Period. Yesterday, the buyer’s agent informed me that his clients requested an insurance quote,  and after the insurance company ran a C.L.U.E. report, the insurance carrier informed them that the insurance rate would be much higher than the buyers anticipated. The quote was  higher than expected because the sellers recently had a plumbing issue in the kitchen that was fully remediated and paid for by another insurance carrier.

The buyers are now claiming that the kitchen remediation was a material fact that should have been disclosed. They are also demanding a return of their Due Diligence Fee and  Earnest Money Deposit. Was the damage in the kitchen a material fact that should have been disclosed?

ANSWER: Under these facts, the answer is “no.” If a property has been partially destroyed, and the damage has been fully remediated by a licensed professional, then the damage is  not a material fact that needs to be disclosed. (NC REC, Material Facts, pp. 28-29) The buyers have agreed in paragraph 4(b)(iii) of the contract that part of Due Diligence is the buyers’ right to investigate “the availability and cost of insurance for the Property.” Therefore, the buyers paid the Due Diligence Fee for the “right to conduct Due Diligence during the Due  Diligence Period” and determine the cost of insurance.

Unless the buyers can show some other reason they should be entitled to a refund of the Due Diligence Fee, then the sellers are not under an obligation to return it because the kitchen damage was not a material fact. Of course, since the parties are still in the Due Diligence Period, the buyers can terminate and receive a refund of their Earnest Money Deposit.

Release Date: 5/9/2017