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The seller would only have liability per the warranties that were in place as a part of the conveyance (which normally are in place for one year after the date of the sale - unless there was fraud associated with the conveyance or the fixture that has become defective).
That said, in the present case, I think your best bet, legally speaking, is to go after the contractor that negligently installed the water heater. There is technically a three years statute of limitations to bring an action against this person for negligence. You could actually bring the action in small claims court as well and use the seller as a witness on your behalf in stating the contractor was required to properly install the water heater. This is your most likely mechanism for an outcome in your favor.
Let me know if you have any other questions. I am a licensed attorney with over a decade of litigation experience. Please also rate my answer positively (three or more stars) so I can receive credit for my response.
Best wishes going forward!
Just checking to see if you have any additional questions. I want to make sure you are as comfortable as possible as you move forward. Thanks!
Just checking one last time on you to see if there are any other issues. Thanks