January 2014 ● When Latent Defects Are Discovered in a Real Estate Transaction

By Harriet Murray ● Cochran Real Estate ● January 2014

Latent defects are flaws or problems with a property that an informed buyer should know about in order to make an informed decision to buy or pass on a property. A premise in general law is the sale of property includes caveat emptor or “buyer beware’’.

Puerto Vallarta Real Estate

Puerto Vallarta Real Estate

Buyers have a duty to inspect their purchase before taking possession. However, it is understood in the law that an inspection is often not sufficient to detect certain deficiencies which can only be discovered through destructive testing or other means which a seller could not reasonably be expected to allow under normal conditions. Structural beams and interior walls often cannot be fully assessed without destructive testing. It would be unreasonable for the seller to allow the buyer to destroy part of the property in order to discover such defects.

The law expects that buyers will protect themselves in a sales contract against defects they cannot possibly be expected to assess prior to purchase. The term “latent defect” is often used as part of guarantee clauses in a sales contract for the buyer to recover damages from the seller if defects turn up in the property after the sale. For example, the seller may be required to pay for repairs of any such damage.

There is no automatic right for a buyer to make a claim against a seller for latent defects if the language is absent in the contract agreement. However, if a latent defect is discovered, there is often a presumption that the seller did in fact have knowledge of the latent defect. In this case, he can be required to prove that he or she could not possibly have known of the defect. The buyer is not expected to have to prove the seller’s culpability. If it can be shown the seller could not have known about the defect, the buyer’s claim could fail.

Note: When the defect could have been discovered by the buyer by a thorough inspection, the buyer may not succeed in a claim against the seller unless the seller actively took steps to hide the defect from a normal inspection.

In all cases, where a seller actively misrepresents the condition of the property by taking steps to make an inspection impossible or by lying about problems when directly asked, the buyer will almost always prevail ( unless it can be shown that the buyer was independently aware of the defect and completed the transaction nevertheless.)

In Mexico, the escritura is the actual contractual agreement which is recorded in the public registry. In this contract, redress of the buyer in the case of seller not disclosing latent defects by law is noted and severe. The seller could be responsible to refund purchase funds and still not able to get the property back. The buyer can retain possession and be the owner of record by means of a legitimate bank trust (fideicomiso) or simple escritura.

Harriet Murray
E-mail: harriet@casasandvillas.com
Website: http://www.casasandvillas.com

This article is based upon legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review.

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