Pre-Sale Home Inspections and Fees Declared Unconstitutional
June 1, 2018 |
Earlier this year, the Federal District Court for the Southern District of Ohio issued a long-awaited ruling on the constitutionality of the City of Oakwood’s pre-sale or point of sale inspection ordinance. The Court ruled these laws requiring mandatory inspections violate owner’s fourth amendment rights because the laws subject owners to a warrantless search without consent. Because the municipality could deny an owner the right to sell their property if they refused the inspection, the Court found the law unconstitutionally coercive.
To protect buyers that elect not to pay for a home inspection or hire unqualified inspectors, municipalities across the U.S. started adopting pre-sale inspection ordinances. An example can be found in City of South Gate, California. The city provides that, “It is the intent of the City to protect new property owners against the undisclosed illegal construction of additions, alterations or improvements on residential property by requiring that the buyer of a residential property be provided with a Pre-Sale Inspection Report prior to the sale or exchange of the property.” The law requires any property owner or seller to obtain an inspection report prior to entering into any agreement for the transfer of the residential property. The expedited fee is $377.00 and owners are required to repair and address any violations prior to the sale of the property (or escrow the costs of repair).
The idea behind owner pre-sale inspections is not new. Sellers may elect to obtain them to remedy any issues prior to putting a home on the market. This can increase the sale price and make the sale process run more smoothly, without any buyer requested repairs that can scuttle a transaction. There are also other benefits such as reducing liability for failing to fully disclose defects and protection from inflated buyer repair estimates to remedy defects. The concern with laws obligating an owner to purchase a pre-sale inspection or prohibit the sale of their property.
In the case of the City of Oakwood in Ohio, the Court ordered the City of Oakwood to return all of the pre-sale inspection fees, approximately $60.00 per owner, it received to all affected. The Court certified as a class action of all individuals and businesses that were subject to the inspections and paid inspection fees to the City. The case was initiated on behalf of lead Plaintiff Jason Thompson, who was threatened with jail time if he transferred property he owned to a limited liability company he owned, without first paying for and completing the pre-sale inspection. The Plaintiff was represented by the 1851 Center for Constitutional Law and the Finney Law firm in Cincinnati, Ohio.
In 2017, the Santa Barbara Association of Realtors filed a similar lawsuit against the City of Santa Barbara, alleging the City’s mandatory pre-sale “zoning information report” ordinance was unconstitutional, which is pending. Depending on the outcome of this case, and others cropping up around the country, the issue may be ultimately considered by the U.S. Supreme Court.