"I purchased a home approximately 6 months ago. I had a home inspection completed by a licensed home inspector. Recently, I discovered that the foundation had very serious problems which existed prior to the purchase of the home. The estimated repair cost is 20% of the home's value. The home inspector failed to observed the signs of a foundation problem and I believe the former home owners had some knowledge of the problem. Are both parties responsible and what are the best avenues of recourse in situation like this? "
Hire a real estate lawyer quick! Your attorney, depending on the facts and state law, may try to hold the real estate broker, home owner/seller and home inspector liable. You'll undoubtedly need an expert evaluation. DO NOT fix or change anything until you've hired an attorney. Save copies of everything pertaining to the purchase and the reports of anyone that came in to inspect the problem. Take pictures immediately. Follow the advice of your lawyer. Local laws differ, and it sounds like it will take some investigation to determine the facts. The old law of "caveat emptor", buyer beware, has given way in some jurisdictions so that the seller might have some responsibility. The contract you signed with the home inspection company probably has lots of exclusions and caveats, so get a lawyer! You might wish to take a look at: Homeowners' Legal Bible (Wiley).