How Homebuyers Can Avoid Falling for a Money Pit

By Geoff Williams

Karen Carlson and her husband bought their house last year and encountered problems almost from the start. "Within the first four months, we had to call the plumber five times," says Carlson, who works in public relations in Orange County, California. When the washing machine or dishwasher ran, so did the downstairs toilet. It overran, in fact.

"At first, we didn't connect the appliances with the toilet," Carlson says. She and her husband thought flushing the toilet upstairs might be causing the downstairs toilet to go berserk. It wasn't uncommon for filthy water to bubble over the seat, fill up the floor, enter the garage and run down the driveway.%VIRTUAL-pullquote-"There's no way someone could have lived here for so long without knowing there was a problem."% The three-bedroom, two-bathroom house shouldn't have had water issues, considering it sold for $630,000.

"By Los Angeles and Orange County standards, that's a pretty cheap home, but for us, it was a major deal," Carlson says.

It took a while to determine the problem, but the plumber eventually discovered the pipes were jammed with dirt and roots. "There's no way someone could have lived here for so long without knowing there was a problem," Carlson says.

[Read: Can You Afford to Buy a Fixer-Upper Home?]

So what should you do if you buy a house that doesn't live up to your expectations? Your options are limited, unfortunately.

Litigation. You could hire a lawyer and go after the sellers or builder who sold you the property. In fact, that's about the only practical solution if you want to get your money back. But it depends on the laws in your state, says Julie Forrester, professor of law at Southern Methodist University's Dedman School of Law in Dallas. "Some states still follow the traditional rule of let the buyer beware," she says.

Fortunately, "many states impose a duty on a homeowner or seller to disclose a known hidden material defect. Many states also require a seller to complete a mandated disclosure form," Forrester adds.

That paperwork can protect you if you decide to go to court, but for many homeowners, going to court isn't realistic. In fact, Carlson says she has the paperwork that would let her retain a lawyer, but she doesn't plan to because the couple already spent so much on home repairs.

Prevention. The best way to avoid finding yourself in this situation is to make sure you don't buy a bad home in the first place. That may not help -- it didn't help Carlson, who got a home inspection. Only minor problems were found, which the home seller agreed to fix (and didn't). But you'd be a fool not to get a proper home inspection before closing. It's the best defense you have from buying a problem house.

Rhonda Duffy, who owns Duffy Realty in Atlanta, suggests asking your insurance company for a Comprehensive Loss Underwriting Exchange report -- known as a CLUE report -- on the house you're considering. The report, which you can also get at LexisNexis.com, contains a seven-year history of claims on the home. So if there have been a lot of problems with the property that were reported to an insurance company, they should be in the report and can help you determine if you're about to buy a disaster.

[Read: What Home Inspectors Don't Notice.]

Be cautious if you are about to buy a home that's been flipped. "Experienced flippers looking to maximize profits at the expense of the buyer will learn how to hide problems from the inspector rather than correct the problems," says Bill Loden, president of the American Society of Home Inspectors.

For instance, he says, "an air conditioner that has coolant leaks can be charged just before the inspection and may work fine for a couple of weeks." Later, not so much.

Keep in mind that there are limits to what home inspectors can uncover. They can't "open up walls and aren't able to perform technically exhaustive procedures on the mechanical systems in a home," Loden says. But there is a lot they can do, says Joan Arkins, an Atlanta Realtor. "I always suggest my clients use an inspector with an infrared camera. I've watched several times as they discovered plumbing leaks in ceilings that would never have been detected without it," she says.

An expensive problem. You certainly want to do everything you can to mitigate possible problems. If you suspect something might be amiss, Duffy recommends talking to the neighbors. That may not be such a bad idea, considering Carlson's flooding spilled down her driveway, and one neighbor, upon seeing it, cracked to her: "Let me guess -- you flushed the toilet while you were running the washing machine?"

All told, Carlson and her husband spent $3,000 to get their pipes fixed. They may have to cough up another $7,000 to get the entire pipe system replaced if there are more problems down the road.

[See: 8 Home Remodeling Projects That Are Worth the Cost.]

There were other issues with Carlson's home. The former owners didn't replace the downstairs sliding glass door, as was required in the purchase contract, so that was another $1,000 Carlson's family had to spend. There were also open junction boxes containing electrical wires "that were supposed to be fixed -- a shock hazard for our toddler," Carlson says.

Carlson was, of course, fortunate. At least she likes her home, and her problems are probably fixed.

But owning, as Carlson put it, "the ultimate lemon house" can make owning a car that turns out to be a lemon seem not so bad. With a car, you have a mobile problem that you can usually return to a dealer, which may replace it, knowing that there are lemon laws and aiming to avoid bad publicity.

And if you can't return a vehicle you never should have bought, at least you can try and solve the problem in the comfort of your own home. But if you buy a troubled home, what are you going to do -- live in your car?