Client bought a meth house, inadvertently

[DaveinTexas]

Hello gang,

I'll try to make it short: My client bought his first home in 2008 and later found out, during 2009, that the previous owner used the home as a meth lab. By the way, under many state laws the previous owner is required to disclose that fact on the seller's disclosure. Nice law but the previous owner did not disclose this fact on the disclosure.

Also a basic home inspection, like the one my client did before he purchased the home, did not uncover the fact the home was used as a meth lab. Now my client, by city law, must remedy the problem by almost rebuilding the home (drywall, insulation, carpet, etc).

Facts: **
**This is a sudden, unexpected event (my client had no reason to believe the home was a meth home unless he would have hired a meth inspector.)
**The deterioration of the property was not due to poor maintenance or normal wear and tear.
**The home suffered a great devaluation as a result of the meth related activities; what he paid at closing is much more than what the home could be sold for without making repairs to make the property whole again.

His insurance company will not cover the cost; big surprise!

Am I justified in claiming a casualty loss in this situation; limited to the expense it takes to make the property whole or similar condition prior to the meth lab damage?

TIA and early Merry Christmas!

[appelman]

IMHO yes

Also, how about suing the seller and/or his broker?

[DaveinTexas]

Also, how about suing the seller and/or his broker?

Good question, this has definitely crossed my client's mind. I know we have to take that into consideration when figuring his loss, especially if he is afforded any legal remedy in the near future. I'll look into that and update.

[RitaB]

I sympathize, really I do

I feel badly for your client, but I have to say:

That is the funniest thread title I have ever seen.

[DaveinTexas]

I feel badly for your client, but I have to say:

That is the funniest thread title I have ever seen.

Thank you, I do my best to catch everyone's attention so I receive a wide range of responses; testing the market so to speak.

[gkaiseril]

What about the title insurance company, his attorney, the real estate brokers?

Did they perform the necessary searches and due diligence?

[DaveinTexas]

What about the title insurance company, his attorney, the real estate brokers?

Did they perform the necessary searches and due diligence?

It's my understanding that their obligation ends at a basic inspection of the home, which typically does not include a compound chemical testing on the home. The inspection would just verify the home is in good working condition from what I understand. If a proper "meth test" were done, then the deal would have obviously fell apart.

Title insurance companies, mortgage brokers, real estate agents; their goal is to close deals and at the least cost possible. Performing the test mentioned above would have been costly and the responsibility of the home owner. Most home owners don't pay for the test because, and would have any reason to unless they interviewed neighbors, knew the history of the home and homeowners, etc.

Word to the wise, get a proper inspection before you decide to purchase a home!

I had another client purchase a farm home that was just lovely, and the black mold throughout the home was included for free!! This particular situation was a scam that the real estate agent and mortgage broker knew about prior to the sale. The case is pending in court.

Don't think living in an apartment is any better. You could be living next door to one of these meth labs or former meth labs. Now it is the "responsibility of the property owner" to clean up the problem once discovered but how many reputable apartment building landlords are there in a major city?

I'm all doom and gloom today. Hey, the tax cuts may be extended!!! There's some good news!

[joanmcq]

RE laws are different from state to state, but the disclosures (or lack thereof) put the seller in breach from what I understand of contract law. In CA, the seller would be on the hook, and perhaps the selling broker, if the broker knew.

[MrsUncleSam]

different angle.....

If the home purchased was a meth lab? Was the home ever raided by the local police and then is it the responsibility of the local police or local level to tell broker?

If the previous owner went to court, due to his manufacturing business, then it is the title company at fault! or did someone place a lien because they received poor merchandise?

If the manufacturers plant was listed in the newspaper, definitely the broker!!! WHY,..they always read the local paper and was suppressing the information.

As to where to place on the new owners tax return....think about the different rules for termites and read the different court rulings?

[travis bickle]

I don't see

Hello gang,
Also a basic home inspection, like the one my client did before he purchased the home, did not uncover the fact the home was used as a meth lab. !

how this is a casualty loss as the IRS calls it. How is this a "sudden event" that devalues his property? He was notified SUDDENLY of the true state of affairs, but that is not the event that damaged his property. The event that damaged his property was the cooking of the meth.

And, per your post, did your client make the home inspection? Or, was it done by a firm of certified experts? If the latter, what recourse do you have in your state?

Good luck

[taxmandan]

My view agrees with Travis, I don't see this meeting the definition for a sudden event. Inadequate due diligence just doesn't meet that standard. Yeah, the inspections are mostly useless according to my realtor clients, unless there are water spots on the ceilings, or sludge floating in the basement.

Recourse is civil suit against the seller/broker for failure to disclose.

[FEDUKE404]

Sue them!

I think the proper course of action is against the prior owner/realtor, especially if either had any knowledge of the history of the house.

In certain (most?) states any building where a meth lab has been is subject to all kinds of severe penalties (EPA etc) for failure to clean up the mess. There can be some REALLY hazardous materials around! Along a similar line, many "smaller" police departments will immediately turn over such a case to the state/federal law enforcement agency, and let them bear the costs of clean up.

It would likely be a stretch for this action to fall under the IRS rules for a casualty loss - especially the "sudden and unexpected" aspect.

Bring in the lawyers!!!!!

FE

[Kram BergGold]

Does this fly?

If the seller was supossed to reveal the facts about the house maybe you can claim it is a theft loss.

[taxxcpa]

Meth damage?

How did the fact that it was used as a meth lab diminish the value of the house?

Unless the meth operation physically damaged the house, the only other damage might be that it might tend to make the neighborhood less attractive for a while if people were generally aware of its use as a meth lab.

The only problem might be that the meth lab would leave something that would remain as a health hazard to future occupants.

[BOB W]

How did the fact that it was used as a meth lab diminish the value of the house?

Unless the meth operation physically damaged the house, the only other damage might be that it might tend to make the neighborhood less attractive for a while if people were generally aware of its use as a meth lab.

The only problem might be that the meth lab would leave something that would remain as a health hazard to future occupants.

Who was the seller? Usually this home gets confiscated by the police as a process of law. Was it sold at auction?