Termination of contract and earnest money

We were in the process of purchasing a home when we discovered it was in a flood
zone and insurance was going to be outrageous. This was never disclosed to us.
The lender discovered it. We terminated the contract based on the inspection. Now
the seller is refusing to sign saying it is not valid so we can not get our 10000
earnest money back. Do we have any legal ground based on failure to disclose
information?

Asked on June 2, 2016 under Real Estate Law, Virginia

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 4 years ago | Contributor

Failing to disclose a known flood zone is fraud: if the seller committed fraud, you have grounds to sue to recover your earned money and likely other costs incurred due to the fraud, such as if you paid for an appraisal, a mortgage application, a title search, etc.
The issue is whether the seller knew or reasonably must have known (any reasonable seller in his/her place would logically have known) of the flood zone; obviously, if he/she was paying for flood insurance, he/she would have known. If the seller knew, it was fraud to not disclose. But if somehow the seller did not know--maybe his lender and insurer had never discovered this, so he was never informed and never paid any additional amounts--then it is not fraud and he may keep the earnest money due to you terminating the contract; you also would not be entitled to your other costs.


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