Hardy v. Flood

          REPORT AND RECOMMENDATION ON DEFENDANTS' MOTION TO DISMISS (Dkt #78)

          N. Reid Neureiter Magistrate Judge

         This case is before the Court pursuant to an Order (Dkt. #80) issued by Judge Christine M. Arguello referring Defendants Men/in J. Flood and Susan S. Flood's Motion to Dismiss Plaintiffs' Second Amended Complaint. (Dkt. #78.) The Court has carefully considered the motion, Plaintiffs Steven Hardy and Jody Whitson-Hardy's Response (Dkt. #87), and the Floods' Reply. (Dkt. #89.) The Court heard argument on the subject motion on October 3, 2018. (Dkt. #103.) The Court has taken judicial notice of the Court's file and has considered the applicable Federal Rules of Civil Procedure and case law. The Court, now being fully informed, makes the following recommendation.

         BACKGROUND

         Factual History

         The following allegations are taken from the Second Amended Complaint (Dkt. #66) and are described in the light most favorable to the Hardys.

         The Floods were the original owners of real property in Franktown, Colorado, that includes a house, a horse barn, and a road arch (the "Property"). (Id. ¶ 8.) In June 2013, the Hardys purchased the Property from the Floods pursuant to a written Contract to Buy and Sell Real Estate (the "Purchase Contract"). (Id. ¶ 5.) Prior to the sale, the Floods provided the Hardys with a "Seller's Property Disclosure (Residential)," (the "SPD"). (Id. ¶ 8; #66-3.) In the SPD, the Floods represented that there were no "additions or alterations" made to the Property, and no "moisture and/or water problems." (Dkt. #66 ¶ 10; #66-3 at 1.) During a property inspection on May 8, 2013, no latent or hidden defects were discovered. (Dkt. #66 ¶11.)

         Unbeknownst to the Hardys, the basement of the home was an addition that had been completed no more than four years before the sale. (Id. ¶13.) Moreover, the Floods had not obtained building permits for the basement construction, the additional upstairs improvements, the barn, or the road arch. (Id.) The Floods knew that the work was done without a permit, but the Hardys did not learn this until 2015. (Id.) According to the Hardys' expert witness, attorney and licensed real estate broker Alan L. Stein, "improvements to real property which are built without required building permits and governmental inspections are 'latent or hidden defects,' which have been defined in Colorado as 'those manifesting themselves after purchase and which are not discoverable through reasonable inspection.'" (Id. ¶ 16; #66-4 at 4.)

         After the sale, the Hardys experienced significant water leaks in the home and, while making repairs, discovered black mold, suggesting a history of leaks and moisture problems. (Dkt. #66 ¶ 20.) At least one of the leaks was caused by shower tiles that had been adhered directly onto plywood, which is not an acceptable construction practice. (Id.) Finally, the road arch collapsed after the Hardys purchased the Property. (Id. at 21.)

         In sum, the Hardys identify the following conditions that they contend were latent defects that the Floods were obligated to disclose:

1. The Floods' construction of additions and alterations to the basement without a building permit, without the building department's review of the design, without inspections by the building department, and in violation of the building code;

2. The Floods' addition of the barn without a building permit, without the building department's review of the design, without inspections by the building department, and in violation of the building code;

3. The Floods' construction of the road arch without a building permit, without the building department's review of the design, without inspections by the building department, and in violation of the building code; and

4. Water leaks upstairs and in the ...