A lawsuit claiming the buyers of a Mountain Home Apartment complex were misled by the seller as to the extensive presence of mold and water damage in some of the buildings is working its way through the legal system.
Christopher and Jeannie Fort of Pocahontas filed the lawsuit October 2, 2020 in Baxter County Circuit Court.
The couple closed on the purchase of what is now Mountain Valley Apartments along Cardinal Street in early March 2020.
The purchase price of almost $6 million covered two separate developments – the four original Creekside Apartment buildings constructed in 1978, and a new single story building complex built in 2017.
According to court records, the alleged damage complained of in the lawsuit is confined to the original buildings.
Both properties went under the name Freedom’s Landing until the sale to the Fort couple.
Freedom Hobbs and Hobbs Investments LLC, located in Piggott, initially bought the abandoned buildings making up the Creekside complex and did extensive work on the interior and exterior of the structures.
HAD BEEN CANDIDATE FOR DEMOLITION
Before it was purchased by Hobbs, the original buildings had deteriorated to the point that the Mountain Home City Council eyed the structures and a courtyard swimming pool as a public nuisance and potential candidate for demolition.
The water and mold problems were reported to vary from building to building in the original section of the complex.
In documents filed as part of the lawsuit, it is claimed that after the Forts assumed ownership of the complex, there were a number of units in the original buildings that could not be rented due to water and mold problems.
Five apartments were deemed to be uninhabitable as the result of water seepage, moisture, mildew and mold, and another seven apartments could not be rented until extensive repairs were made to address the problems.
FAYETTEVILLE FIRM DOES INSPECTION
A Fayetteville engineering firm, Lawrence Forensic Engineering (LFE), was brought in to inspect the buildings in the original complex by an insurance company holding a policy the Forts had taken out on the property.
According to the report submitted by the Fayetteville firm in 2020, deterioration due to moisture(rot)in the buildings was “long-term” and due to both surface and subsurface moisture flowing into the crawlspaces and subsequently collecting/pooling.
The report also noted that deterioration in substructure framing and foundations in one of the original buildings was extensive and had led to the failure of a number of structural members.
At the time of the 2020 study and prior to remedial work being done, that particular building was “potentially hazardous to human life,” according to the engineers.
In other cases, tenants have reported stepping through the floors in their units. The Fayetteville engineering firm said, the presence of significant deterioration, “Is a cause for concern.”
After the inspection, the insurance company denied a damage claim filed by the Forts, citing a number of reasons, including that the damage occurred prior to the policy even being written.
The company was listed as a defendant in the Fort lawsuit, but has asked the court to approve a motion for summary judgment that would dismiss allegations against the insurer.
Electronic court records do not show that a ruling has been made.
NEW MULTI-BUILDING COMPLEX
Hobbs later constructed a multi-building complex made up of single story structures just south of the property where the original apartment buildings stand.
The lawsuit against Hobbs and Hobbs Investments, LLC and a number of other parties involved in the sale, claims that discussions about a purchase of both pieces of property began in late November 2019.
In the Fort’s lawsuit, they allege that they were told by Hobbs:
n The entire package represented a “turnkey operation.”
n That the work that had been done on the original buildings included “gutting them to the studs – making everything brand new.”
n That additional improvements or significant maintenance would “not be needed for the next 10-15 years.”
The suit also contends that in a Seller’s Property Disclosure dated March 6, 2019, Hobbs answered “no” to questions about water damage or the presence of mold.
In answer to the allegation, Hobbs’ attorney writes that the disclosure document clearly warns buyers not to place total reliance on what is claimed about the property and should obtain independent inspections to verify what they had been told.
A provision in the disclosure statement reads: this disclosure is not a substitute for inspections any potential buyer might make or have made on his behalf.
In answering the claims in the lawsuit, Hobbs’ attorney contends that the new owners had from March 6, 2019 to March 5, 2020 to conduct their own inspections or hire professionals to carry out the inspections.
The prospective buyers should have relied on these “verification inspections,” rather than any alleged statements made by Hobbs or anyone else involved in the sale about the condition of the property.
In one document, Hobbs’ lawyers point to language that “strongly encourages” such independent inspections by prospective buyers to conduct their own independent inspections of the property.
Documents filed in the lawsuit are reported to show the Forts chose to personally inspect the buildings rather than hire professionals to do the job, and that those inspection resulted in no “buyer requested repairs.”
In court records, the Forts indicate they made inspections of the property on December 10, 2019, February 21,2020 and March 4, 2020.
The new owners claim they first learned of what was described as “significant and serious damage from water intrusion in and below the affected buildings” in mid-April 2020.
It was also discovered that many of the affected buildings contained a significant presence of mold “associated with — and related to — water intrusion issues.”
MAINTENANCE MAN’S STATEMENT
The lawsuit details conversations the new owners had with a man identified as head of maintenance during the time Hobbs owned and managed the property and continuing after the Forts brought the property.
The man is alleged to have said the water intrusion issues existed prior to the sale and that Hobbs had knowledge of both the water and mold problems.
He also alleged he was told to paint over portions of visible mold damage 24-to-48-hours prior to the time the new owners were scheduled to make a visual inspection of the property.
It is alleged in the lawsuit that a “sump pump” was used to remove about two feet of standing water in the crawlspace of one of the buildings before the buyers made a visual inspection.
After discovering the problems, the new owners “immediately began remediation efforts to mitigate further damage,” according to the lawsuit.
BUYER BEWARE
Arkansas is one of only a handful of states in the nation still following the caveat emptor rule (buyer beware) in real estate transactions. Most states use the caveat venditor rule that shifts the burden to the seller to make truthful and complete disclosures regarding the property being sold.
There are four main exceptions to Arkansas’ buyer beware approach, including a requirement that a seller disclose any health and safety risks, such as black mole, asbestos or lead paint.
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