For most of us, buying a home is one of the most important financial decisions you will make. Before the purchase, you want as much information as possible. If you are working with quality real estate professionals, you will receive all types of information from home inspection reports and surveys to mortgage estimates and homeowners’ insurance quotes. One thing, particularly in this area of Florida, that often goes overlooked is the termite bond.
A termite bond is a legal contract made between pest control companies and the homeowner. If you are purchasing a home, as opposed to building one, there is a good chance that the seller had a termite bond in place. As the buyer, you will almost always be offered the opportunity to assume the bond. In doing so, you will assume annual payment of the bond, and it will be transferred from the seller to you. The real estate agent or closing agent will oftentimes advise you that the termite bond will offer you coverage in the event termites cause damage to your new home. After all, that is the purpose of a termite bond. Most people believe that termite bait stations keep the termites away, and the termite bond, like insurance, is there to take care of damage caused by termites. As you will find out below, that is not often the case.
The decision to assume the existing termite bond is usually made quickly and as a matter of course. The existing pest control company has already strategically placed termite bait stations around the perimeter of the home, and it’s easier to agree to continue with the existing company than to choose a new one and go through the process of having bait stations removed and replaced and signing more paperwork. You just want to move in already!
Unfortunately, we are seeing more and more instances where buyers are purchasing homes with termite damage that cannot be seen by a typical home inspector. Remember that home inspectors are not permitted to open walls, do any destructive testing, and cannot even move a piece of furniture that may be in their way. In most instances, the seller is unaware of a termite infestation, and as such, the “no” boxes are checked in the section of the Seller’s Disclosure which asks whether the seller is aware of any prior or present termite infestations or damage. As a buyer, you have the right to rely upon the Seller’s Disclosure, but what happens when you find evidence of significant termite damage a few months after moving in and are in the middle of that remodeling project you had planned?
Most likely, you will call everyone associated with the transaction and ask them if they had any idea that the home had suffered a prior termite infestation. In the majority of circumstances, nobody will have had any clue that termites invaded the home. The next call is usually to the pest control company, and this is where the unexpected begins to occur.
A representative from the pest control company will come out to the home and perform an inspection of the damage, in keeping with the termite bond’s requirements. We have learned that most companies are either denying coverage outright or offering extremely limited coverage. With a termite bond in place, you might be asking yourself why damage caused by termites is not covered. Good question.
Should you ever find yourself in the unenviable position of trying to understand why “termite insurance” is not covering damage caused by termites, you will likely listen to a pest control representative tell you that the termites either came to the home because of moisture damage or that the bond does not cover the type of termites that damaged your home. It is natural instinct to go back and read that again, because, surely, the author inadvertently included a typographical error. Right? Wrong. In our area of Florida, along the Gulf Coast, we are home to a rare termite called the Formosan termite. We are also home to the more common eastern subterranean termite, but it is the Formosan termite that does the most damage to the wood inside and outside our homes. Given the amount of damage caused by Formosan termites, coupled with their apparent ability to avoid the commonly used in-ground bait stations, some termite bonds specifically exclude damage caused by Formosans. As for the “presence of moisture” exclusion, pest control companies are quick to opine that your home suffered a water intrusion event and that termites were drawn to the wet wood. You may be advised to contact your homeowners’ insurance company, who will then inevitably blame the damage on the termites. You will then be left without coverage for the damage.
In order to prevent this series of events from befalling you, dear reader, you are strongly encouraged to take the following steps prior to purchasing your new home:
- Inquire as to the name of the existing pest control company holding the bond and review the bond to understand what is and what is not covered. You may wish to use a pest control company that offers more or different coverage;
- Contact the existing pest control company and ask to see all records of treatment. If the company did not hold the bond for very long, find out who did, and call that company also;
- Focus not only on whether the home was treated for damages, but check to see that the bait stations were changed routinely; and
- Contact a pest control company that does not hold the bond and request an exterior and interior inspection to see whether the third-party company can locate any sign of termite activity and/or damage.
These steps are in no way exhaustive. In order to provide yourself with the best chance that the home you are about to purchase does not show signs of prior infestation, you should speak with your real estate professional about additional measures which may be available. In the end, there is no surefire method that can be employed to rule out a prior infestation, short of recruiting Superman to use his x-ray vision. However, should you uncover significant damage after closing on the home, it is imperative that you act swiftly to seek sound advice from real estate professionals, contractors, and/or legal counsel.
This article is for general information only and is not intended as and does not constitute legal advice or solicitation of a prospective client. It should not be relied on for legal advice in any particular factual circumstance.