MINNEAPOLIS (WCCO) — Just days into buying their dream home, a Twin Cities couple discovered their worst nightmare.
John Kozlik and his partner bought a newly-renovated house from a flipper in south Minneapolis last year. They had no idea about the seller’s history of fraud.
WCCO investigated allegations he covered up trouble with drywall and missing paperwork.
“It seemed like the perfect house,” John Kozlik recalled.
That house along 13th Avenue South near Lake Nokomis fit their wish list: Four bedrooms, three baths, a fenced yard to foster dogs and move-in ready with new finishes throughout.
“Yeah this is definitely the house we want to make an offer on,” Kozlik remembered thinking.
Kozlik and his partner offered $10,000 more than the asking price last summer to get the deal done. But, a once $360,000 appraisal on the remodeled house fell to just $120,000 in a matter of seven months.
“It’s the worst thing you can imagine happening when you buy a house. That’s what it is,” he said.
They were forced to rip up a third of their finished space when four days after moving in, they watched a minor rainstorm make its way into their basement.
“There’s a huge crack right here right through the egress window that they added,” as he pointed out problems.
“On every side of the drywall in here it was black mold. We didn’t even realize how big the problem was at that time,” he added.
They’d eventually find mold on every side of the house and learn the flippers had hidden countless cracks and tree roots on the basement cinder block behind new drywall. For months, they wore masks when they went downstairs, separated with plastic from the rest of the house.
Kozlik would come to find out permits weren’t pulled for any of the plumbing or electrical work, either.
“They did all this work, added this bathroom and there was no permits pulled for this bathroom whatsoever,” he said.
They bought the house from a couple who said they lived there and did the work themselves. The couple had formed a company with two other business partners under the name Ace of Spaces, LLC and sold Kozlik the house.
But one day after he discovered the water problems, the sellers dissolved the company, all within a week of the final sale.
“It was clear that we had been tricked,” Kozlik said.
Joe Werb is one of the sellers and the guy who told Kozlik he did the work.
WCCO found Werb has a long history of fraud: In 2004, he was charged with making $1 million selling counterfeit sunglasses online. Just last, he year faced charges as part of a multi-million dollar cell phone trafficking ring.
Werb was convicted of recruiting homeless people to buy smartphones that were shipped overseas and sold on the streets for thousands of dollars. He went to prison for that crime after flipping the house.
“I trusted the system,” Kozlik said.
With little paperwork to point to potential problems, a home inspector didn’t find anything serious before the sale and the seller’s disclosure form didn’t mention all of the work that had really been done. Nicholas Montgomery owns Advice Homes Real Estate
“In Minnesota, you have to disclose anything you know will be affecting the life and enjoy ability of a property,” Montgomery said.
While he has nothing to do with this case, he does recommend paying close attention to permits on flipped properties. They’re on record at every city.
“They’re buying a home and fixing it up. Clearly, they’ve done work. So if there’s no permits pulled that’s definitely a red flag,” Montgomery said.
Montgomery says it’s OK to ask for copies of contractor receipts. A request you can include in your purchase agreement.
“To protect your interest, your realtor should always try to do their best to ask for what’s going on to protect you,” Montgomery added.
As John Kozlik would learn, protection can be tough to come by once you buy. He could potentially lose the money he put down if he’d short sell his house, and foreclosing would hurt his credit for years to come. They’re now in the middle of arbitration. It’s a legal proceeding where a professional in the industry reviews the case to see if fraud occurred.
“We don’t know how long it will take,” Kozlik replied when asked how long it might take to figure this out.
What he does know is he’ll do things differently should they ever be able to afford to start over at a new address.
The attorney representing Joe Werb and his one-time business partners wouldn’t comment because of the ongoing arbitration. The state labor department recommends doing a criminal background check before buying a home from a flipper. Or, even on contractors doing work on your home.
You’ll find more advice about what to avoid and what to do before signing a contract here.