Commentary on Washington State law and how it Relates to real Estate

Understanding debt-to-income ratios and how they relate to loan modifications

Posted on December 30, 2012 by Robert P. Dickson

In determining whether to grant a loan modification, there are generally three central factors that a lender takes into consideration: 1) the financial hardship of the borrower; 2) whether the borrower is currently delinquent on mortgage payments or is at risk of becoming delinquent in the immediate future; and 3) the borrower’s debt-to-income ratios. While the first two factors seem relatively straightforward, understanding your debt-to-income ratios is oftentimes confusing and may seem complex.

What is a debt-to-income ratio?

Simply put, a “debt-to-income ratio” (DTI) is the percentage of a homeowner’s grossmonthly income that goes toward paying the homeowner’s debts. In the context of a home loan modification, two DTI ratios are considered: a “front-end” DTI ratio and a “back-end” DTI ratio.

Why are Your Debt-to-Income Ratios Important?

Because lenders want to avoid as much risk as possible, they will pay special attention to your DTI ratios. In essence, lenders use your DTI ratios as indicators of your ability to repay your debts. Therefore, if your DTI ratios are low, lenders may be more inclined to assist you because they believe that you have a higher probability of repaying your debts. On the other hand, if your DTI ratios are high, lenders may be less likely to assist you because they believe you have a lower probability of repaying your debts (and, therefore, you are a greater risk).

Because your DTI ratios play such a significant role in the home loan modification process, it is a good idea for you to do a rough calculation of your own front-end and back-end DTI ratios before seeking a loan modification. By doing your own calculation, you can estimate whether a lender is more likely or less likely to grant you a loan modification.

How Do You Calculate Your Front-end DTI Ratio?

To calculate your front-end DTI ratio, you divide your total “monthly house payment” by your gross monthly household income:

           Monthly House Payment ÷ Gross Monthly Household Income= Front-end DTI Ratio

Your “monthly house payment” is often referred to as “PITIA.” “PITIA” is defined as principal, interest, taxes, insurance (including homeowners insurance and hazard and flood insurance) and homeowners association fees (if applicable). Note that if you pay property taxes, insurance, and/or homeowners association fees separately from you mortgage principal and interest, these expenses need to be added to your total “monthly house payment.”

Examples

1)    Mr. Smith’s monthly house payment is $1,100. Mr. Smith is a carpenter and his gross monthly household income is $2,700. To figure out his front-end DTI ratio, Mr. Smith takes the amount of his monthly house payment ($1,300) and divides it by the amount of his gross monthly household income ($2,700). Mr. Smith’s front-end DTI ratio is 40.7%, because $1,300 ÷ $2,700= 40.7%.

2)    Mr. and Mrs. Baker’s monthly house payment is $1,900. Mr. Baker is an electrician and his gross monthly income is $2,800. Mrs. Baker is a seamstress and her gross monthly income is $1,200. Combined, Mr. and Mrs. Baker’s gross monthly household income is $4,000. To figure out their front-end DTI ratio, the Bakers take the amount of their monthly house payment ($1,900) and divide it by the amount of their gross monthly household income ($4,000). The Bakers’ front-end DTI ratio is 47.5%, because $1,900 ÷ $4,000= 47.5%.

How Do You Calculate Your Back-end DTI Ratio?

To calculate your back-end DTI ratio, you add up all of your monthly debt payments (do not include any expenses that are not listed on your credit report), which may include:

·      Your “house payment” or PITIA (this was used in calculating your front-end DTI)

·      Credit card payments

·      Automobile loan or lease payments

·      Alimony/child support

·      Educational/student loan payments

·      Any personal loans

·      Any other accounts reported in your credit reports

After adding all of these monthly debts up, you then take the total and divide it by your total gross monthly household income:

Monthly Debt Payments ÷ Gross Monthly Household Income= Back-end DTI Ratio

Examples

1)    Mr. Smith’s monthly debt payments come out to $1,700 ($1,100 for his monthly house payment, $300 for his car loan, and $300 for alimony). Mr. Smith is a carpenter and his gross monthly household income is $2,700. To figure out his back-end DTI ratio, Mr. Smith takes the amount of his monthly debt payments ($1,700) and divides it by the amount of his gross monthly household income ($2,700). Mr. Smith’s back-end DTI ratio is 62.9%, because $1,700 ÷ $2,700= 62.9%.

2)    Mr. and Mrs. Baker’s monthly debt payments come out to $2,300 ($1,900 for their monthly house payment, $200 for their car lease, and $200 in credit card payments). Mr. Baker is an electrician and his gross monthly income is $2,800. Mrs. Baker is a seamstress and her gross monthly income is $1,200. Combined, Mr. and Mrs. Baker’s gross monthly household income is $4,000. To figure out their back-end DTI ratio, the Bakers take the amount of their monthly debt payments ($2,300) and divide it by the amount of their gross monthly household income ($4,000). The Bakers’ back-end DTI ratio is 57.5%, because $2,300 ÷ $4,000= 57.5%.

3)    Ms. Garcia’s monthly debt payments come out to $1,600. Ms. Garcia is a civil engineer and her gross monthly income is $5,000. To figure out her back-end DTI ratio, Ms. Garcia takes the amount of her monthly debt payments ($1,600) and divides it by the amount of her gross monthly household income ($5,000). Ms. Garcia’s back-end DTI ratio is 32%, because $1,600 ÷ $5,000= 32%.

Why Do Your DTI Ratios Matter and What Should You Do?

Today, lenders have specific target ranges and limitations on allowable DTI ratios for loan modifications. Although your lender may have slightly differing DTI ratio targets and limitations, most lenders are willing to grant loan modification to homeowner’s whose DTI ratios are below 50%. Remember, lenders want to avoid risk and only want to extend loan modifications to homeowners who have a high probability of repaying their debts.

Therefore, it is a good idea for you to do your own initial front-end and back-end DTI calculations so that you can get a general sense of whether a lender is more likely or less likely to grant you a loan modification. When doing these calculations keep in mind that DTI ratios well below 50% are ideal. Doing these calculations can save you time in determining whether a loan modification is right for you or whether another option might be more advantageous to you in protecting your house.

As always, remember that the earlier you look into the requirements of loan modifications and begin the process, the better. Start by doing your own front-end and back-end DTI calculations and go from there. If you have questions, do not hesitate to ask for help. Also, remember that a qualified attorney who has experience in working with loan modifications can be extremely beneficial to you and can assist you in working directly with your lender and in protecting your interests.

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Does the RCW mandate attorney’s fees awards in timber trespass cases? Appeals court in Bassani Farms v. Maddox says “no.”

Posted on December 30, 2012 by Robert P. Dickson

One of Washington State’s greatest natural resources is its trees and forests. Given the abundance of this natural resource, Washington has enacted several statutes which govern accidental or intentional damage to and/or removal of timber on someone else’s property (without permission of course). These laws are set forth in RCW 4.24.630 and RCW 64.12.030.
Although both RCW 4.24.630 and RCW 64.12.030 deal with damage to and removal of trees, there has always been a conflict between these statutes. Namely, how does the court award damages to a prevailing party in an action when the trespasser damaged and/or removed trees, but did not injured the property? (Both RCW 4.24.630 and 64.12.030 discuss damages for timber trespass, yet 4.24.630 includes a provision for attorney’s fees).

MischwaldRCW 4.24.630 says that if a person goes onto another’s property without permission and removes or damages timber, that person is liable for treble damages and attorney fees. RCW 64.12.030, however, says that if a person goes onto another’s property without permission and removes or damages any tree, timber, or shrub, that person is liable only for treble damages—no attorney fees may be awarded.

Recently, in Bassani Farms, LLC v. Maddox, the Washington Appellate Court (Division III) offered some guidance on this conflict. For one, the Bassani Court asserted that RCW 64.12.030 requires no mental state and applies equally to intentional and negligent takings and damages to trees and shrubs. Second, the Bassani Court reiterated that RCW 4.24.630(2) expressly exempts any claims that fall under RCW 64.12.030’s language from being applied to RCW 4.24.630. The result is therefore, that prevailing claims pertaining ONLY to damage and/or removal of trees from a landowner’s property can only be awarded treble damages—no attorney fees can be awarded.

Ultimately, Bassani’s outcome may negatively impact on landowners whose trees have been damaged and/or removed and seek redress in court. In such cases, attorney fees may be substantial. Consequently, the possibility of recovering attorney fees may be equally, if not more, important to a landowner as is recovering treble damages. If courts are finding that a landowner’s claims apply under RCW 64.12.030 (which does not allow attorney fees), not RCW 4.24.630, landowners may be less likely to sue because they will not be awarded attorney fees and any other litigation-related costs.

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Bankruptcy: what are my options?

Posted on December 30, 2012 by Robert P. Dickson

For people experiencing severe financial difficulties and who are overwhelmed with debt, bankruptcy may be an important option. Whether difficult times are brought on by job loss, medical problems, family breakups, or even financial irresponsibility, bankruptcy can grant you much desired relief. Understanding some basic principles of consumer bankruptcy, however, is imperative in knowing which form of bankruptcy is appropriate.

Within bankruptcy law, there are several different “chapters.” Each “chapter” is specifically designed to help either individuals or businesses in eliminating, resolving, and/or repaying their debts. Selecting which bankruptcy chapter to proceed under, depends on the individual’s or business’s specific circumstances. For individuals (“consumers”) who are seeking relief through the bankruptcy process, two chapters are available: Chapter 7 and Chapter 13. These two bankruptcy chapters differ significantly and offer different results.
Chapter 7 Bankruptcy
Chapter 7 is commonly referred to as “liquidation bankruptcy.” When an individual proceeds under Chapter 7, a trustee is appointed by the bankruptcy court. The trustee then gathers all of the individual’s property (except any property that is exempt), sells (“liquidates”) it, and distributes the proceeds of the sale to the individual’s creditors. At the end of this process, any outstanding debts are discharged (eliminated). The creditors then chalk-up their losses and move on, while the individual must start anew with very little assets leftover. The Chapter 7 process generally takes about four to six months.
Not everyone is allowed to proceed under Chapter 7, however. To be eligible under Chapter 7, an individual must pass the “means test” (a mechanical formula that is used to determine who can and cannot repay some debt.) If it is determined by the court that the individual’s “current monthly income” is above a certain amount and the individual has the ability to repay some debt, the individual may be denied Chapter 7 relief and may be forced to proceed under Chapter 13. Most people who meet the eligibility requirements proceed under Chapter 7 because, unlike Chapter 13, Chapter 7 takes less time to complete and does not require the individual to pay back any portion of his or her debts.

Chapter 13 Bankruptcy
Chapter 13 differs significantly from Chapter 7’s liquidation method. Commonly referred to as an “Adjustment of Debt” or “Wage Earner’s Plan,” Chapter 13 focuses on using the individual’s future earnings, rather than liquidated property, to pay creditors. When an individual files under Chapter 13, a court-approved plan allows the individual to keep all of his or her property, but the individual must pay a portion of all future income to the creditors. This payout plan lasts for three to five years, depending on the circumstances and the court-approved plan. When the individual has completed the agreed payout plan, any remaining obligations are discharged.
Naturally, eligibility to proceed under Chapter 13 requires that an individual must prove that he or she is capable of paying a portion of his or her future monthly income to creditors for a period of three to five years. If the individual’s income is not regular or is too low, Chapter 13 may be denied. Likewise, if the individual’s total amount of debt is too high, the court may deny Chapter 13. Unlike Chapter 7, Chapter 13 takes much more time to complete. However, the major benefit of Chapter 13 is that the individual is allowed to keep his or her property.
Understanding the main differences between Chapter 7 and Chapter 13 can assist you in knowing which form of bankruptcy will most likely work best for you. Keep in mind, however, that because the bankruptcy process is complex and oftentimes requires professional knowledge to be successful, seeking professional help is your best bet.

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A Claim for Rescission Based on Misrepresentation Survives the Economic Loss Rule and Alejandre

Posted on December 30, 2012 by Kevin Steinacker

Division Two of the Court of Appeals recently issued an opinion on yet another suit for negligent misrepresentation and fraud by the purchaser of a home against the seller. Jackowski v. Borchelt, 151 Wn. App. 1, 209 P.3d 514 (2009). With two notable exceptions, the opinion predictably follows the precedent established by the Supreme Court in Alejandre v. Bull, 159 Wn.2d 674, 153 P.3d 864 (2007).

Architecture_frameworkJackowski confirms that the economic loss rule holds a party to its contract remedies and affirmed dismissal of the purchaser’s negligence claim against the seller. The opinion further affirmed dismissal of the purchaser’s fraud claim for failure to disclose that the property was in a landslide area where a reasonable inspection prior to closing would have disclosed the landslide risk. Each of these results seems obvious based on Alejandre. The decision therefore underscores a purchaser’s need to either perform a thorough inspection prior to purchasing a home or to insist upon contractual terms detailing the seller’s responsibility for representations as to the condition of the home (or both).

Jackowski dealt with two issues that were not addressed in Alejandre, though: the purchaser’s claim for rescission and claims against the real estate agents involved in the transaction. Jackowski successfully argued that the economic loss rule applies to economic damages, not to equitable relief. Division Two ruled that although the economic loss rule bars recovery, rescission is avoidance of a contract, not recovery. Accordingly, the purchaser’s claim for rescission based on negligent misrepresentation was not barred as a matter of law, despiteAlejandre and the economic loss rule.

Similarly, the economic loss rule did not apply to bar the purchaser’s statutory and common law claims against the real estate agent. The economic loss rule bars tort claims for losses suffered as a result of a breach of duties assumed only by contract. Alejandre, 159 Wn.2d at 682. However, the real estate agent had duties to the purchaser based on common law and on statute (specifically, RCW 18.86), in addition to any duties assumed by contract. The statutory and common law claims were not barred by the economic loss rule, and those claims were improperly dismissed on summary judgment.

After Alejandre, the legal prospects for home buyers who had been the victims of negligent misrepresentation were bleak. The standard contracts used for the majority of residential sales provided no relief for issues with the condition of a home, and it is never easy to prove fraud or fraudulent concealment, even if there is some indication that it may have occurred. The opinion inJackowski might give buyers some hope. It is at least possible to ask for rescission of the contract, and there is a chance of recovery against real estate agents involved in the transaction. Of course, the best advice for buyers is still to take diligent steps prior to closing, rather than to rely on the tenuous claims that may be available to them post-closing.

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Seattlebubbleblog: Interesting Source for Puget Sound Real Estate Info

Posted on December 30, 2012 by Dan Dickson

One of my favorite websites I visit to keep a pulse on the Puget Sound residential real estate market is the Seattlebubbleblog. Its founder and editor is Seattle resident named Timothy Ellis who goes by the blog name “The Tim.” http://seattlebubble.com/blog/

Seattle_skyline_nightThe blog has daily posts which include some great graphs, charts and analysis of the Puget Sound real estate market.  What makes the posters on the Seattle Bubble Blog unique is their credibility.  They were one of a few vocal media sources in Washington State that consistently and loudly predicted the current real estate crash before it happened.  In addition to good posts and analysis by “The Tim,” the comment section provides a lively discussion about Puget Sound real estate issues.  *Be aware homeowner: many of the comments made are from bloggers who predict continued steep declines in the Puget Sound real estate – so the blog isn’t for the faint of heart.

The effect of local and federal laws as they relate to the residential real estate market in the Puget Sound area are also frequently discussed by the blog posters and authors with links to news articles and additional resources.

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Unequivocal waiver of a contract term: what does it look like?

Posted on December 30, 2012 by Robert P. Dickson

In a recent summary judgment motion, the main topic at issue was whether the famed Mike M. Johnson case applied (Mike M. Johnson v. County of Spokane, 150 Wn.2d 375, 78 P.3d 161 (2003)).  As many will recall, Mike M. Johnson (“MMJ”) states that contract provisions are enforceable unless waived by the provision’s benefit ting party.  This waiver can be implied through conduct or actions, however, if it is so implied, the conduct/action must be unequivocal for waiver to be valid.  MMJ dealt specifically with a contract provision regarding the procedure by which a contractor could receive compensation for changes in the contract (or “change orders”).

Construction_lawThe contract owner in MMJ at almost every turn notified (often in writing) the contractor that if it wanted additional consideration for changes in the contract, it must satisfy the requirements for change orders and turn in specific documentation and information to the owner.  MMJ failed to do so.  The court held that even though the contract owner had actual knowledge of the changed circumstances, this wasn’t enough.  It would have to do more to waive other than simply having actual notice of the changes.

So, the big question remains: if MMJ wasn’t waiver, what does waiver look like?  I believe that MMJ and another case called American Safety Cas. Ins. Co. v. City of Olympia, 133 Wn.App. 649, 137 P.3d 865 (2006) give us a hint:

In MMJ, the court analyzed an assertion by the plaintiff which said that because the county had actual knowledge of the changed circumstances, that it therefore couldn’t deny compensation for mere failure to follow the details of the contract.  The court disagreed:

Construction_Workers“MMJ argued to the Court of Appeals, and maintains before this court, that when an owner has actual notice of a contractor’s protest or claim, that notice, in and of itself, excuses the contractor from complying with mandatory contractual protest and claim procedures.  MMJ contends that the decision of Bignold v. King County, 65 Wn.2d 817, 822, 399 P.2d 611 (1965) establishes the ‘actual notice’ exception . . . [c]ontrary to MMJ’s contention, the Court of Appeals in Bignold did not hold that the owner’s actual notice of the changed condition in and of itself excused the contractor from complying with the contractual notice provisions.  Rather it was the owner’s knowledge of the changed conditions coupled with the subsequent direction to proceed with the extra work that evidenced its intent to waive enforcement of the written notice requirements under the contract.”  Id. at 388-89

From that analysis, the court has clued us into what may look like an unequivocal waiver: actual notice, coupled with directions to proceed.  This resembles an estoppel argument in a lot of ways.  A contract owner may not be protected if he/she knows about change orders, then directs the contractor to do the changed work.  The court seemed to want to avoid the idea of using the contract as a payment shield after an owner draws the contractor into doing change orders.

This idea is echoed in the American Safety case.  There, the court further clarified what unequivocal waiver may look like: “[w]e stress that the discussions between the City and American Safety took place after the work was completed, and thus the situation was not one where the City was directing American Safety to perform its obligations under the contract while the parties negotiated the contractual dispute.  Had the City directed American Safety to focus on performing work rather than worrying about assembling documentation to comply with contractual provisions, then such situation could arguably be construed as implied waiver. . .”  Id. at 772.

Unequivocal waiver of a contract provision would appear to be an instance where a benefited party knows of changed circumstances and directs the other party to more forward, OR, the party is aware of the changed circumstances, then waives the contract procedures by insisting that the work be done and that the contractual formalities be put off or ignored.

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Important things to keep in mind when facing foreclosure

Posted on December 30, 2012 by Robert P. Dickson

BSpencerhomeIn a recent case, the issue arose as to what options a party has when their home has already been foreclosed upon, and sold in a trustee’s sale.  Washington’s Deed of Trust Act provides direction for this issue in RCW 61.24.130.

As interpreted in In re Marriage of Kaseburg,126 Wash.App. 546, 108 P.3d 1278 (2005), a party waives the right to post-foreclosure-sale remedies under the Deed of Trust Act where the party:

  1. received notice of the right to enjoin the sale;
  2. had actual or constructive knowledge of a defense to foreclosure prior to the sale; AND
  3. failed to bring an action to obtain a court order enjoining the sale

This Act provides a the only manner in which ANY party may prevent or restrain a trustee’s sale on any proper ground, once the foreclosure has begun with a “receipt of the notice of sale and foreclosure.”  Id. at 236.

It would seem that the safeguards required before a trustee’s sale can go through, influenced what that legislature allows in post-foreclosure-sale remedies.  In other words, even if there is a valid reason to undue a trustee’s sale, you must take those steps prior to the sale.  IF, of course, you did not receive proper notice and were not aware of the sale, you are NOT barred from bringing an action to stop the sale.

To be safe, if one is facing a foreclosure and his/her home has a scheduled trustee’s sale date, the best thing is to hire an attorney to initiate the legal process.  At a minimum, therefore, the home owner is not guilty of waiving his or her rights to post-foreclosure-sale remedies and can forestall the process before it is too late.

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Loan modification options for property investors (non owner-occupied properties)

Posted on December 30, 2012 by Robert P. Dickson

The Obama legislation, which passed in March, aimed specifically to assist those in danger of losing their primary residence to foreclosure.  It was thought that individuals purchasing property for investment (namely those acquiring property then leasing it out) would not be eligible under the new law.
While that has not changed, our office has seen some interesting movement by banks and loan servicers regarding investment properties.  Under many circumstances, even the investor may gain some relief through loan modification.

Seattle_-_Belmont_Pl_E_01Banks/servicers largely follow the same pattern as the owner-occupied loan modifications.  First, they require a signed forbearance agreement, then they require an extensive disclosure of the investor’s financial status in the form of a “Hardship Packet”.  When they have those two things in hand, the servicer/bank will decide whether to modify the loan.  The following is what is most often required:

1.  Letter describing hardship

2.  Last two pay stubs

3.  Length of time at current employer

4.  One month’s complete bank statement

5.  Most recent tax return

6.  Statement of your complete income (including family members residing with you)

7.  Proof of paid property taxes, homeowners insurance, and HOA fees

8.  (If self-employed): (a)  Profit/loss statements; (b)  three pay stubs; (c)  last two years tax returns; and (d)  business and personal bank statements.

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Can You Lose the Right to Damages from a Nuisance if You Sell the Property Before Trial?

Posted on December 30, 2012 by Kevin Steinacker

A recent opinion from the Court of Appeals address the issue of standing (“a party’s right to make a legal claim or seek judicial enforcement of a duty or right” according to Black’s).  Division Two handed down its decision in Vance v. XXXL Development, Inc., involving a property owner’s nuisance claim against a developer.  The developer had built a 25-foot high concrete block wall just two feet north of the homeowner’s property line.  The homeowner sold her home prior to trial, and claimed that the sale price was $100,000 lower due to the nuisance.  After the sale, the developer moved to dismiss the suit, claiming that the homeowner no longer had standing to sue.

IWallLincolnBeachViewNorthThe developer relied on RCW 7.48.020, which provides that a nuisance action “may be brought by any person whose property is … injuriously affected or whose personal enjoyment is lessened by the nuisance.” Because the statute describes the damages in the present tense, the developer argued that the homeowner lost standing when she sold the home (ie, at the time of trial, she wasn’t one who is injuriously affected or whose enjoyment is lessened).  The trial court agreed with the developer.

The homeowner argued that the statute was not meant to be read so narrowly.  For example, RCW 7.48.180 allows recovery of damages even after a nuisance has been abated.  Further, the homeowner pointed out that seemingly arbitrary outcomes could result: a homeowner who sold the day before trial cannot recover, but one who sells the day after trial can.  Also, the tortfeasor would have an incentive to drag out litigation and intensify the nuisance, hoping that the homeowner would be forced to move due to the noxious nuisance before trial.

Division Two agreed with the homeowner’s arguments.  It also noted that damages from the nuisance would be more definite if the property had been sold, and emphasized the rule that “the spirit or purpose of an enactment should prevail over express but inept wording.”

Although I agree that statutes generally should be interpreted to mean what they say, Division Two probably made the right decision in this case.  The homeowner here appears to have been damaged, and the purpose of the nuisance statutes is not frustrated by allowing her to recover for the damages incurred when she did own the home.  It also seems to be a stretch to argue, based solely on the use of the present tense, that the legislature intended to exclude as plaintiffs those who have sold their property after inception of the nuisance.  The unanswered question (and there are not enough facts in the opinion to speculate) is whether the developer’s retaining wall actually constitutes a nuisance for which the homeowner should recover.  But at least she has the right to argue her claim.

Economic Loss Rule blocks “negligent representation and fraudulent representation” causes of action when a contract controls

Posted on December 30, 2012 by Robert P. Dickson

In Cox v. O’Brien, No. 37194–4–II the Court of Appeals Div. II reinforced the economic loss rule:

Rumson, New Jersey“Citing Alejandre v. Bull, 159 Wn.2d 674, 682, 153 P.3d 864 (2007), both parties appear to concede that the economic loss rule applies and that the loss at issue here is the structural damage within the walls of the home, undiscovered until after the home sale closed and the Coxes moved in.  In Alejandre, our Supreme Court discussed the economic loss rule as maintaining the fundamental boundaries of tort and contract law.   Alejandre, 159 Wn.2d at 682 (citing Berschauer/Phillips Constr. Co v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 826, 881 P.2d 986 (1994)). 

       Where economic losses occur, recovery is confined to contract to ensure that the allocation of risk and the determination of potential future liability is based on what the parties bargained for in the contract.  Alejandre, 159 Wn.2d at 683.  A seller sets a price in consideration of potential contractual liability.  Id. The economic loss rule prevents a party to a contract from obtaining through a tort claim benefits that were not part of the contractual bargain.  Id.

In short, the purpose of the economic loss rule is to bar recovery for alleged breach of tort duties where a contractual relationship exists between the parties and the losses are economic in nature.  If the economic loss rule applies, a party will be held to the contractual remedies, regardless of how the plaintiff characterizes the claims.  Id. at 684.” Cox at 8–9. 

For those readers who are not attorneys and don’t understand some of the intricacies of the economic loss rule, if there is a contractual relationship between the parties, the court will look to the contract and NOT tort law to govern how damages are determined.  Consequently, negligence in representing the condition of the home are controlled by the selling contract, and not general tort law. 

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