Disclosures...What You Need to Know!

Transcription

1 presents Disclsures...What Yu Need t Knw! Califrnia Department f Real Estate Disclaimer Statement: This curse is apprved fr Cntinuing Educatin credit by the Califrnia Department f Real Estate. Hwever, this apprval des nt cnstitute an endrsement f the views r pinins which are expressed by the curse spnsr, instructr, authrs r lecturers. Intrductin Overwhelming. That may be the best (plite) wrd t use t describe the prcess f prviding disclsures when selling real estate. Disclsure laws cme at us frm all directins, be it federal, state, r lcal law. T make matters wrse, each disclsure law has its wn set f cmplexities, including what is required, when it's required, and wh must cmply. T tp it ff, the wrld f disclsures is ever changing with new laws intrduced every year and existing laws ften mdified. Given the cmplexities f prviding disclsures, it's n wnder that getting prfessinal assistance fr this daunting task is a majr reasn fr sellers and buyers t seek ut the services f real estate agents. But what if yu're the real estate agent? Hw are yu ging t make sense f it all? Often times, as the agent, it's nt enugh t knw what's required. Yu need t knw the practical implicatins, and hw t prperly address the many questins yur wn clients pse t yu abut disclsures. This curse aims t help real estate agents cut thrugh the cnfusin n these disclsure laws. It explains the disclsure requirements by delving a little deeper int wh, what, when, and why. It als prvides many Practice Pinters s yu'll knw hw t d what yu'll need t d. Althugh this curse cvers mst cmmn disclsure requirements under Califrnia and federal law, it des nt cver all disclsures required by law r practice. The Califrnia Assciatin f REALTORS (C.A.R.) is ne f the largest state trade rganizatins in the United States, with ver 200,000 members dedicated t the advancement f prfessinalism in real estate. C.A.R. prvides many legal services t its members t assist in the perfrmance f real estate services. Sme member services that can help cut thrugh the cnfusin n disclsures are as fllws:

2 The Legal Sectin f C.A.R. Online at prvides many useful legal publicatins fr members nly. Tw f ur mst ppular publicatins are the Sales Disclsure Chart fr REALTORS and the Summary Disclsure Chart fr REALTORS. These helpful charts summarize the disclsure laws fr yu t refer t in yur day-t-day practice. We als have many ther legal publicatins cvering many disclsure tpics available at qa.car.rg. Realegal is an electrnic legal infrmatin service that ntifies yu by whenever there is a breaking legal develpment. Realegal is free fr members wh have their address n file with C.A.R. T sign up, g t realegal@car.rg and give us yur address. Fr yur particular legal cncerns, call Member Legal Htline at , Mnday thrugh Friday (9 a.m. t 6 p.m.), t cnsult with a C.A.R. attrney. Transfer Disclsure Statement Overview It s the granddaddy f them all. T ensure a meaningful disclsure f the cnditin f residential prperties when transferred, the Califrnia Legislature created the Real Estate Transfer Disclsure Statement (TDS). This three-page frm addresses many aspects f a prperty that may be f interest r cncern t a prspective buyer. Sellers f mst residential prperties f ne-tfur units in Califrnia must cmplete and deliver the TDS t their buyers. The TDS cntains tw main sectins. The first ne is the seller s sectin. It is essentially a questinnaire f what the seller knws abut the prperty, including its amenities (e.g., dishwasher, air cnditining, autmatic garage dr peners), any significant defects (e.g., rf, fundatin, electrical system), and ther items f interest r cncern (e.g., permits, neighbrhd nuisances, CC&R's). The secnd part f the TDS is the agent s sectin. It prvides space fr bth the listing agent and the buyer s agent t write dwn the results f their visual inspectin f the prperty. By law, real estate agents f residential prperties cnsisting f net-fur units must cnduct a reasnably cmpetent and diligent visual inspectin f the prperty, and disclse all facts materially affecting the value r desirability f the prperty that an investigatin wuld reveal (Cal. Civ. Cde Sectin 2079). The nly exceptin t the agent's visual inspectin requirement is subdivisin sales that fall under the public reprt requirement r ne f its exemptins, unless the prperty has been previusly ccupied (Cal. Civ. Cde Sectin ). PRACTICE POINTER. C.A.R. publishes tw TDS frms: the Real Estate Transfer Disclsure Statement (Frm TDS) fr real prperty, and the Manufactured Hme and Mbilehme: Transfer Disclsure Statement (Frm MHTDS). These and ther standard frms fr yur real estate practice are available at C.A.R., yur lcal Bard/Assciatin, r thrugh WINFrms. Be sure t familiarize yurself with the frms yu use befre yu present them t yur clients fr review r cmpletin, s yu wn t be caught ff-guard if yur clients ask yu questins abut what they re signing.

3 Applicability The TDS is required fr the transfer f mst residential prperties f ne-t-fur units. Mre specifically, with certain exceptins listed belw, the law requires delivery f the TDS in the fllwing transactins: Any transfer by sale, exchange, installment land sale cntract, lease with an ptin t purchase, any ther ptin t purchase, r grund lease cupled with imprvements f real prperty r residential stck cperative, imprved with ne-t-fur dwelling units. Resale transactin fr a persnal prperty manufactured hme r mbilehme intended fr residential use. EXCEPTIONS: The fllwing transactins are exempt frm the TDS requirement: Transfers in subdivisins subject t the public reprt requirement, r exempt frm the public reprt requirement. Transfers by curt rder, such as sales by prbate curt rder, writ f executin, freclsure, bankruptcy trustee, eminent dmain, r decree f specific perfrmance. Transfers t lenders by brrwers in default, t buyers under pwer f sale, r t buyers by lenders wh have acquired the prperty under pwer f sale (i.e., REO r real estate wned sales). Transfers by a fiduciary administrating a decedent's estate, guardianship, cnservatrship r trust. Fr trusts, hwever, a TDS is required if the trustee is a natural persn wh is sle trustee f a revcable trust, and he r she is a frmer wner f the prperty r has ccupied the prperty within the preceding year. PRACTICE POINTER. The rule fr trusts is rather cnvluted. Generally speaking, if the seller is a trust, the TDS is nt required. Hwever, if the individual selling the prperty n behalf f the trust (i.e., the trustee) has persnally wned r ccupied the prperty within the last year, the TDS is likely t be required. Transfers frm ne c-wner t anther. Transfers t a spuse (e.g., divrce). Transfers t smene in the lineal line f cnsanguinity (e.g., frm parent t child, r frm grandparent t child). Transfers by the Cntrller under the Unclaimed Prperty Law. Transfers t r frm any gvernmental entity (including tax sales). PRACTICE POINTER. Agents, beware! Even if a transactin is exempt frm the TDS requirement, a real estate agent is generally nt exempt frm the duty t visually inspect residential prperties f ne-t-fur units. In this situatin, yu may use C.A.R.'s Agent's Visual Inspectin Disclsure (Frm AVID) (release date April 2007) t shw that yu have cnducted a visual ispectin f the prperty, and t write dwn the results f that inspectin. Even fr transactins that are subject t the TDS requirement, yu may cmplete

4 and attach the AVID t the TDS t dcument yur visual inspectin. The Seller's Duties A seller subject t the TDS law must cmplete the TDS in gd faith and deliver it t the buyer (Cal. Civ. Cde Sectin ). Sellers shuld cmplete the TDS using the knwledge they have persnally gained frm their wn experience. Thus, agents shuld nt cmplete the seller s sectin f the TDS. Fr sales transactins, the TDS must be delivered t the buyer as sn as practicable befre transfer f title. Fr transfers by installment land sale cntracts, lease with ptin t purchase, and grund lease cupled with imprvements, the TDS must be delivered as sn as practicable befre entering int a cntract (Cal. Civ. Cde Sectin ). Sellers shuld nt attempt t waive the TDS requirement by characterizing a transactin as an as is sale. Any waiver f the TDS requirement is vid as against public plicy and unenfrceable (Cal. Civ. Cde Sectin 1102)(c)). The Duties f the Buyer's Agent A buyer s agent must generally deliver the TDS t the buyer. In the event a buyer s agent cannt btain the TDS frm the seller r listing agent, the buyer s agent must advise the buyer in writing f the buyer s right t the TDS (Cal. Civ. Cde Sectin ). The Buyer's Rights If the TDS (r any amendment) is delivered t the buyer after the executin f the buyer s ffer t purchase, the buyer has three days after delivery in persn (r five days after delivery by mail) t terminate the ffer by ntifying the seller r the seller s agent in writing. The buyer, hwever, has n right t rescind if the seller delivers the TDS befre the buyer writes an ffer (Cal. Civ. Cde Sectin ). Surce: Califrnia Civil Cde Sectin 1102 et seq. Self-Check Questins 1. Transfers exempt frm the TDS requirement include: a. prbate sales b. trust sales if the trustee has ccupied the prperty within the last year c. prperties t be demlished within ne year d. all f the abve

5 2. What is the Transfer Disclsure Statement (TDS)? a. disclsure statement abut the cnditin f a cmmercial prperty b. disclsure statement abut the cnditin f a residential prperty c. disclsure statement f natural hazard znes d. bth b and c 3. Under the Transfer Disclsure Statement (TDS) law, when can a buyer rescind the purchase cntract? a. within 5 days f receiving the TDS by persnal delivery b. within 5 days f receiving the TDS by mail c. within 7 days f receiving the TDS by fax d. within 5 days f receiving an amendment t the TDS 4. Fr residential prperties with ne-t-fur units, if the transactin is exempt frm the TDS requirement, the real estate agent des nt have t cnduct a visual inspectin f the prperty. a. True b. False Natural Hazard Znes Overview Fires, flds, earthquakes--califrnia may be ne f the mst desirable places n earth t live but, like ther places, its residents bear their share f risks. Recgnizing this, the Califrnia Legislature has enacted extensive laws ver the years aimed at identifying gegraphical znes susceptible t natural hazards and requiring sellers and real estate agents t disclse zne-related infrmatin t buyers. In 1997, the Califrnia Legislature enacted the Natural Hazards Disclsure Law t cmprehensively restructure disclsure laws pertaining t natural hazards. This law expanded the disclsure requirements smewhat, but it als attempted t unify and simplify them. This law als intrduced the Natural Hazard Disclsure Statement which is a single-page frm fr disclsing natural hazard znes. What Are These Hazard Znes? The law regulates the disclsure f six specific natural hazard znes: tw fld znes, tw fire znes, and tw earthquake znes. Here s a brief summary:

6 SPECIAL FLOOD HAZARD AREAS. As the name implies, these are areas subject t unusual fld risks and are designated as Zne A r Zne V. Fld hazard znes are identified by the Federal Emergency Management Agency (FEMA). DAM INUNDATION ZONES. These are areas subject t ptential flding in the event f a dam failure. Dam inundatin znes are designated by the State Office f Emergency Services and the Department f Water Resurces. WILDLAND FIRE AREAS. Als knwn as State Fire Respnsibility Areas r SRA s, these hazard znes cntain substantial frest fire risks and hazards. Wildland fire areas are designated by the State Bard f Frestry. VERY HIGH FIRE HAZARD SEVERITY ZONES. These are areas f very high fire hazard utside the State Fire Respnsibility Areas. Prperty wners in these hazard znes usually have special fire mitigatin duties, such as clearing brush and installing fire-retarding rfs. Very high fire hazard severity znes are designated by the State Bard f Frestry. EARTHQUAKE FAULT ZONES. These are areas, usually ne-furth f a mile wide, demarcated by surface traces f knwn active faults. These hazard znes are identified by the Divisin f Mines and Gelgy (als knwn as the Califrnia Gelgical Survey). SEISMIC HAZARD ZONES. Seismic hazard znes are areas subject t unusual grund mvement during earthquakes. They are categrized as landslide znes r liquefactin znes. Seismic hazard znes are designated by the Divisin f Mines and Gelgy (als knwn as the Califrnia Gelgical Survey). Applicability Disclsure f natural hazard znes must be made fr all sales f real prperty, and resales f persnal prperty mbilehmes and manufactured hmes. Aren t sme transactins exempt? The answer is "n." One f the mst cmmn misunderstandings in prviding disclsures is that certain sellers are exempt frm the natural hazard disclsure laws. In fact, there are n exemptins frm the duty t disclse natural hazard znes. Fr example, even if a transactin is a prbate sale r a lender s REO sale, it is nt exempt frm natural hazard zne disclsures. In additin, althugh many ther disclsure rules apply nly t the sale f residential prperties f ne-t-fur units, the duty t disclse natural hazards als applies t the sale f residential prperties f ne-t-fur units, apartment buildings, cmmercial buildings, industrial structures, and vacant land. Natural Hazard Disclsure Statement As stated abve, the Natural Hazard Disclsure Law created a new disclsure dcument knwn as the Natural Hazard Disclsure (NHD) Statement. With certain exceptins discussed belw, the NHD Statement must be used t disclse natural hazard znes fr mst residential prperties cnsisting f ne t fur units. Mre specifically, the NHD Statement is required fr the fllwing types f transactins: Any transfer by sale, exchange, installment land sale cntract, lease with ptin t purchase, any ther ptin t purchase, r grund lease cupled

7 with imprvements, f any real prperty r residential stck cperative, imprved with r cnsisting f ne-t-fur dwelling units. Any resale f a persnal prperty manufactured hme r mbilehme intended fr use as a residence. Certain transactins are exempt frm the NHD Statement requirement, such as prbate sales, freclsure sales, and trust sales. The NHD Statement is als nt required when selling residential prperties with five r mre units r nn-residential prperties. Des this mean that, fr these exempt transactins, there is n requirement t disclse natural hazards? N! Remember what we said natural hazard disclsures must be made fr all sales f real prperty, and resales f mbilehmes and manufactured hmes. If a transactin is exempt, the seller r seller s agent need nt prvide the NHD Statement. Hwever, he r she must still tell the buyer in sme manner (preferably in writing) that the prperty is lcated in a hazard zne. This rule is cnfusing, s it bears repeating. Fr nn-exempt prperties, such as mst residential prperties cnsisting f ne-t-fur units, the NHD Statement is mandatry. Fr exempt prperties, disclsure that a prperty is lcated in a hazard zne is still mandatry, but the use f the NHD Statement is vluntary. PRACTICE POINTER. Sellers and listing agents may use C.A.R. s standard frm Natural Hazard Disclsure Statement (Frm NHD) t satisfy this requirement. Getting the Infrmatin Hw d yu determine whether a prperty is lcated in a natural hazard zne? The law des nt specifically require anyne in particular t cmplete the NHD Statement. Yur clients can g dwn t the apprpriate cunty ffices t check the maps and parcel lists r sme f the respnsible gvernmental agencies prvide the infrmatin in ther ways. PRACTICE POINTER. Sellers may chse t cmplete the NHD Statement fr their wn prperties. If, hwever, a seller encunters a map that is difficult t read, the law is frgiving in this regard. If a map r accmpanying infrmatin f a certain natural hazard zne is nt f sufficient accuracy r scale fr a reasnable persn t determine a prperty s lcatin, yu simply mark Yes n the NHD Statement, indicating that the prperty is lcated in that hazard zne. If, hwever, yu btain a reprt frm an expert indicating that the prperty is nt in that hazard zne, then yu can mark N and attach the expert's reprt. This when-in-dubt-mark-yes rule des nt apply t fld hazard znes r dam inundatin znes, because prperties in thse hazard znes are identified by parcel lists, nt maps. (Cal. Civ. Cde Sectin (b)). Instead f cmpleting the NHD Statement themselves, many real estate agents and their clients find it mre cnvenient t hire a disclsure reprting cmpany t prvide

8 the infrmatin. These cmpanies cnduct research and investigatin t determine whether a particular prperty is lcated in the hazard znes, and generally prvide clients with cmprehensive reprts detailing their findings. PRACTICE POINTER. A purchase agreement between a buyer and seller may require mre than what the law requires. It is nt uncmmn fr buyers t ask, as part f their purchase ffer, fr a NHD Statement frm a certain disclsure reprting cmpany. Fr example, C.A.R. s Califrnia Residential Purchase Agreement and Jint Escrw Instructins (Frm RPA-CA), gives a buyer the ptin t request that the seller pay fr a natural hazard zne disclsure reprt prepared by a certain disclsure reprting cmpany. If the seller agrees, that seller becmes cntractually bligated t prvide a NHD Statement prepared by that disclsure cmpany, even thugh an expert s reprt is nt required by law. PRACTICE POINTER. When lking fr a disclsure reprting cmpany, be sure t shp arund. Factrs t cnsider when chsing a disclsure reprting cmpany include the range f services prvided, the turnarund time, and a cmpany s qualificatins, experience, reputatin, and insurance cverage. Substituted Disclsure Fr transactins that fall within the NHD Statement requirement, if a seller uses a disclsure reprting cmpany, the seller and seller s agent will nt be held liable fr any errr r inaccuracy in the expert s reprt r pinin given t the buyer, as lng as the seller r seller s agent has n persnal knwledge f that errr r inaccuracy (Cal. Civ. Cde Sectin ). When using a disclsure reprting cmpany, the seller and seller s agent shuld check the bx n the NHD Statement that they have exercised gd faith in selecting a reprt prvider as required by the law, that they have nt independently verified the infrmatin, and that they are nt persnally aware f any errrs r inaccuracies in the infrmatin (Cal. Civ. Cde Sectin ). PRACTICE POINTER. In 1999, a dispute arse between sme disclsure reprting cmpanies as t what the law requires. Sme cmpanies argued that an NHD Statement nt prepared by a gelgist did nt satisfy legal requirements t the same extent as a statement prepared by a gelgist and bearing a gelgist s seal. T help reslve this issue, the Califrnia legislature enacted Sectin (c) f the Califrnia Civil Cde. This legislatin specifically states that sellers and agents may discharge their disclsure duties by btaining a reprt r pinin prepared by a licensed engineer, land surveyr, gelgist, r expert in natural hazard discvery dealing with matters within the scpe f the prfessinal s license r expertise. Lcal Optin Statements

9 What is this! A Lcal Optin Real Estate Disclsure Statement is a frm that a lcal jurisdictin may require sellers t use t disclse lcal issues. This lcal ptin statement is nt cmmnly used in Califrnia. Hwever, it is a valid substitute fr the NHD Statement if it prvides substantially the same infrmatin and warning language cntained in the NHD Statement. The Seller's and Listing Agent's Duties The duty t disclse falls upn the seller r the seller s agent depending n the type f natural hazard zne. The duty t disclse, hwever, des nt arise until the infrmatin is made available. The fllwing list breaks dwn wh is respnsible fr what, and when the disclsure duty arises: SPECIAL FLOOD HAZARD AREAS: Seller s agent r the seller if there is n seller s agent. Fr prperties exempt frm the NHD Statement requirement, disclsure is required nly when ne f the fllwing cnditins is met: (1) The seller r seller s agent has actual knwledge that the prperty is within a special fld hazard area; r (2) The lcal jurisdictin has cmpiled a parcel list f affected prperties and has psted a ntice at the ffices f the cunty recrder, cunty assessr, and cunty planning agency identifying the lcatin f the parcel list (Cal. Gv t Cde Sectin ). DAM INUNDATION ZONES: Seller s agent, r the seller if there is n seller s agent. Fr prperties exempt frm the NHD Statement requirement, disclsure is required nly when ne f the fllwing cnditins is met: (1) The seller r seller s agent has actual knwledge that the prperty is within an inundatin area; r (2) The lcal jurisdictin has cmpiled a parcel list f affected prperties and as psted a ntice at the ffices f the cunty recrder, cunty assessr, and cunty planning agency identifying the lcatin f the parcel list (Cal. Gv t Cde Sectins and ). VERY HIGH FIRE HAZARD SEVERITY ZONES: The seller. Fr prperties exempt frm the NHD Statement requirement, disclsure is required nly when ne f the fllwing cnditins is met: (1) The seller r seller s agent has actual knwledge that the prperty is within a high fire hazard severity zne; r (2) The lcal agency has a map including the prperty and has psted a ntice at the ffices f the cunty recrder, cunty assessr, and cunty planning agency identifying the lcatin f the map and any changes (Cal. Pub. Res. Cde Sectin ). WILDLAND FIRE AREAS: The seller. Fr prperties exempt frm the NHD Statement requirement, disclsure is required nly when ne f the fllwing cnditins is met: (1) The seller r seller s agent has actual knwledge that the prperty is within a wildland fire zne; r (2) The lcal agency has a map including the prperty and has psted a ntice at the ffices f the cunty

10 recrder, cunty assessr, and cunty planning agency identifying the lcatin f the map and any changes t the map (Cal. Pub. Res. Cde Sectin 4136). EARTHQUAKE FAULT ZONES: Seller s agent, r the seller if there is n seller s agent. Fr prperties exempt frm the NHD Statement requirement, disclsure is required nly when ne f the fllwing cnditins is met: (1) The seller r seller s agent has actual knwledge that the prperty is within a delineated earthquake fault zne; r (2) The city r cunty has a map including the prperty and has psted a ntice at the ffices f the cunty recrder, cunty assessr, and cunty planning agency identifying the lcatin f the map and any changes t the map (Cal. Pub. Res. Cde Sectin ). SEISMIC HAZARD ZONES: Seller s agent, r the seller if there is n seller s agent. Fr prperties exempt frm the NHD Statement requirement, disclsure is required nly when ne f the fllwing cnditins is met: (1) The seller r seller s agent has actual knwledge that the prperty is within a seismic hazard zne; r (2) The city r cunty has a map including the prperty and has psted a ntice at the ffices f the cunty recrder, cunty assessr, and cunty planning agency identifying the lcatin f the map and any changes t the map (Cal. Pub. Res. Cde Sectin 2694). Duties f the Buyer's Agent A buyer s agent is nt bligated t disclse natural hazard znes. He r she need nly deliver t the buyer the NHD Statement prvided by the listing agent r seller. Hwever, in the event the buyer s agent cannt btain the NHD Statement required and des nt have written assurance frm the buyer that the buyer has been received, the buyer s agent must advise the buyer in writing f his r her rights t the disclsure. The buyer s brker must retain a recrd f this advisry fr three years (Cal. Civ. Cde Sectin ). The Buyer's Rights Once a seller r agent prvides the disclsures required by this law, the next lgical questin is, what can the buyer d with that infrmatin? In transactins which require an NHD Statement (i.e., mst ne-t-fur unit residential sales), the buyer may have the right t rescind the purchase cntract. Fr these transactins, if the NHD Statement r any required amendment is delivered after the executin f the buyer s ffer t purchase, the buyer has three days after delivery in persn, r five days after delivery by mail, t terminate his r her ffer by delivering a written ntice f terminatin t the seller r listing agent. Fr transactins that d nt require the NHD Statement, the seller must still disclse the hazard znes, but the buyer des nt have an autmatic rescissin right.

11 PRACTICE POINTER. Fld disaster areas are subject t a separate disclsure law. It applies t sellers f bth residential and cmmercial prperties wh have received federal disaster relief assistance that was cnditined upn maintaining fld insurance. These sellers must disclse t their buyers that the buyers must btain and maintain fld insurance under applicable federal law. Details f this disclsure law are fully set frth at 42 U.S.C. 5154a r g t Surce: Califrnia Civil Cde Sectins 1103 et seq. (and underlying laws fr each natural hazard zne). Self-Check Questins 1. The Natural Hazard Disclsure Statement is: a. a part f the Agency Disclsure Statement b. ne f the key cmpnents f the Natural Hazard Disclsure Law c. a single-page frm fr disclsing natural hazard znes d. bth b and c 2. Certain transfers are exempt frm the requirement t disclse natural hazard znes. a. True b. False 3. What prperties are affected by the Natural Hazard Disclsure Law? a. residential prperties with ne-t-fur units, and persnal prperty mbilehmes and manufactured hmes b. cmmercial and industrial prperties c. bth a and b d. nne f the abve Mell-Rs Taxes and 1915 Bnd Act Assessments Overview A Mell-Rs Cmmunity Facilities district is an entity frmed by a lcal gvernment, district, r agency t finance a public service r public facility,

12 such as plice prtectin, fire prtectin, schls, and libraries. A Mell-Rs district finances these prjects by levying special taxes against the prperty wners within the area wh benefit frm these prjects Bnd Act assessments are fixed lien assessments cllected in installments t secure bnds issued under the Imprvement Bnd Act f This Imprvement Bnd Act was enacted in the year 1915 t allw lcal gvernments t issue bnds and cllect assessments as a way f paying fr the csts f cnstructing streets, public ways, and ther wrk and imprvements. The law requires a seller f real prperty, under certain circumstances, t disclse t a prspective buyer that the prperty is lcated in a Mell-Rs district, r subject t a 1915 Bnd Act assessment. Althugh these are tw separate disclsure requirements, they are discussed tgether here, because they are set frth tgether in ne statute (Califrnia Civil Cde Sectin b). Applicability With certain exceptins, the Mell-Rs tax and 1915 Bnd Act assessment disclsure requirements apply t the transfer f mst residential prperties cnsisting f ne-t-fur units. Mre specifically, this disclsure law applies if bth f the fllwing cnditins are met: Prperty being transferred is subject t a Mell-Rs tax r 1915 Bnd Act assessment; and Transfer invlves a sale, exchange, installment land sale cntract, lease with ptin t purchase, any ther ptin t purchase, r grund lease cupled with imprvements, f any real prperty r residential stck cperative, imprved with r cnsisting f ne-t-fur dwelling units. Transfers exempt frm this disclsure law are virtually identical t the exemptins frm the TDS requirement discussed abve, such as, but nt limited t, prbate sales, freclsure sales, REO sales, and trusts. Fr subdivisin sales, hwever, althugh technically exempt frm this particular statute, subdividers f tw r mre parcels must nevertheless cmply with Mell-Rs requirements as further discussed belw. The Seller's Duties The seller s bligatins under this law are a bit unique. The seller must make a gd faith effrt t btain a ntice f Mell-Rs special tax r ntice f 1915 Bnd Act assessment frm each levying lcal agency. Gd faith means hnesty in fact in the cnduct f the transactin. Thus, under a strict reading f the statutry language, a seller apparently satisfies the requirements f this law upn exerting a gd faith effrt t btain the disclsure ntices frm the lcal agency, even thugh the seller never gets ne.

13 PRACTICE POINTER. Let s say, despite a seller s gd faith effrts, a disclsure ntice cannt be btained, and yet, the seller r agent has actual knwledge that the prperty is subject t a special tax. It wuld be prudent t share that infrmatin with the buyer (preferably in writing), because it wuld likely be cnstrued as a material fact that needs t be disclsed anyway. Lcal gvernmental agencies must respnd t the seller s request fr disclsure ntices within five days, and may charge a reasnable fee fr their services. Once the seller btains a ntice, he r she must prvide it t the buyer as sn as is practicable. The ntice may be mailed t the buyer r delivered persnally. SUBDIVISIONS. There are special disclsure rules fr subdivisin sales. Fr example, a subdivider f tw r mre lts, parcels, r units, wh sells the prperty, r wh leases it fr ver five years, must prvide the buyer r lessee with a Ntice f Special Tax, and must btain an acknwledgement f receipt frm the buyer r lessee. This Ntice f Special Tax must be delivered t the buyer befre the signing f a purchase r lease agreement. Disclsure under this law prvides sellers with a prtectin frm liability. Delivery f the Mell-Rs and 1915 Bnd Act disclsure ntices t the buyer shall be deemed t satisfy any respnsibility the seller may have t infrm the buyer abut special taxes, assessment installments, r the existence f any levying district. N additinal infrmatin is required. Substituted Disclsures fr 1915 Bnd Act Assessments Althugh ntices f Mell-Rs taxes are usually readily available, certain cunties in Califrnia d nt currently prvide ntices f 1915 Bnd Act assessments. This situatin culd have psed a big prblem fr sellers and real estate practitiners because the law apparently requires the disclsure ntice t be prepared by a lcal gvernmental agency. T address this ptential prblem, the Califrnia Legislature enacted a C.A.R.- spnsred amendment t clarify that, in lieu f a 1915 Bnd Act ntice prepared by a gvernmental agency, the seller may prvide the buyer with a disclsure ntice btained frm a nngvernmental surce, such as a disclsure reprting cmpany, if the ntice cnfrms t certain statutry requirements. First, disclsure cmpanies can change the statutry ntice frms r cnslidate infrmatin frm tw r mre levying districts as lng as the infrmatin is presented clearly and accurately. Secndly, disclsures prepared by nngvernmental surces must cntain the fllwing infrmatin: FOR MELLO-ROOS: The name f the Mell-Rs levying taxes against the prperty. The annual tax due fr the current tax year. The maximum tax that may be levied against the prperty in any year. The percentage by which the maximum tax may increase per year.

14 The date until which the tax may be levied. A cntact telephne number, if available. FOR 1915 BOND ACT: The name f the 1915 Bnd Act special assessments and bnds. The current annual tax n the prperty. A cntact telephne number, if available. The Agent's Duties The law des nt impse any specific bligatins n real estate licensees when it cmes t Mell-Rs r 1915 Bnd Act disclsures. In fact, the law prvides that delivery f the Mell-Rs and 1915 Bnd Act disclsure ntices t the buyer shall be deemed as satisfying any respnsibility the seller and the agent may have, t infrm the buyer abut special taxes, assessment installments, r the existence f any levying district. Failure t Cmply A seller wh fails t cmply with this disclsure law may be liable t the buyer fr any damages suffered by the buyer. Fr subdivisin sales, a subdivider wh willfully vilates the Mell-Rs disclsure rules may be held liable fr actual damages, attrney s fees, and a fine up t $500. The Buyer's Rights Once the seller disclses Mell-Rs special taxes r 1915 Bnd Act assessments t the buyer, what can the buyer d with that infrmatin? Because this disclsure law is part f the TDS law, the buyer has the same rescissin rights as thse under the TDS rules. If delivery ccurs after the signing f an ffer t purchase, the buyer has three days after persnal delivery f the disclsure ntices (r five days after delivery by mail) t terminate the purchase cntract by delivering a written ntice f that terminatin t the seller r listing agent. Surce: Califrnia Civil Cde Sectin b and Califrnia Gvernment Cde Sectin Self-Check Questins 1. What is/are (an) acceptable substitute(s) t a 1915 Bnd Act ntice prepared by a gvernmental agency? a. the seller's mst recent year's prperty tax bill b. the preliminary title reprt

15 c. a disclsure ntice frm a disclsure reprting cmpany d. all f the abve 2. What is/are a seller's bligatin(s) under the Mell-Rs disclsure law? a. t make a gd faith effrt t btain a Ntice f Special Tax b. t prvide a Ntice f Assessment t the buyer c. bth a and b d. nne f the abve Supplemental Prperty Tax Bills Overview A change f wnership may trigger a reassessment f prperty taxes. Yet, buyers may nt realize they must pay supplemental tax bills, which culd amunt t a lt f mney and cause hardship. Hence, in 2005, the Califrnia legislature enacted a new law requiring sellers t disclse t their prspective buyers that they may we supplemental taxes. Applicatin This law applies t mst sellers f residential prperty cntaining ne t fur units. Mre specifically, this law applies t the fllwing: Any transfer by sale, exchange, installment land sale cntract, lease with an ptin t purchase, any ther ptin t purchase, r grund lease cupled with imprvements f real prperty r residential stck cperative, imprved with ne-t-fur dwelling units. Resale transactin fr a persnal prperty manufactured hme r mbilehme intended fr residential use. Transfers exempt frm this disclsure law are the same as the exemptins frm the TDS requirement discussed abve. Exemptins include, but are nt limited t, prbate sales, freclsure sales, REO sales, and trusts. Fr subdivisins, hwever, a Ntice f Supplemental Prperty Tax Bills (see belw) must be included in a ntice f intentin filed with the Department f Real Estate t ffer subdivided lands fr sale r lease (Cal. Business & Prfessins Cde Sectin 11010). The Seller's and Agent's Duties

16 A seller r agent subject t this law must deliver t the prspective buyer the fllwing disclsure ntice: Ntice f Yur Supplemental Prperty Tax Bill Califrnia prperty tax law requires the Assessr t revalue real prperty at the time the wnership f the prperty changes. Because f this law, yu may receive ne r tw supplemental tax bills, depending n when yur lan clses. The supplemental tax bills are nt mailed t yur lender. If yu have arranged fr yur prperty tax payments t be paid thrugh an impund accunt, the supplemental tax bills will nt be paid by yur lender. It is yur respnsibility t pay these supplemental bills directly t the Tax Cllectr. If yu have any questin cncerning this matter, please call yur lcal Tax Cllectr s Office. The law requires the supplemental prperty tax ntice t be in at least 12- pint type r a cntrasting clr. Mrever, the title must be at least 14-pint type r a cntrasting clr. PRACTICE POINTER. Sellers and agents may prvide their buyers with C.A.R. s standard-frm Statewide Buyer and Seller Advisry (Frm SBSA) which includes a paragraph that cmplies with the supplemental prperty tax disclsure requirement. C.A.R. als publishes a separate frm called the Ntice f Yur Supplemental Prperty Tax Bill (Frm SPT). Because the ntice shuld be f at least 12-pint type and the title shuld be f at least 14- pint type, be sure nt t reduce the size f the print by cpier, fax, r cmputer if the buyer has nt yet signed. Surce: Califrnia Civil Cde Sectin c The Residential Envirnmental Hazards Bklet Overview Envirnmental hazards affecting ur hmes are a health cncern and scial issue f bvius imprtance. They are als rapidly becming an equally imprtant legal cncern. Califrnia has addressed these issues by develping a bklet entitled "Residential Envirnmental Hazards: A Guide fr Hmewners, Buyers, Landlrds and Tenants." This bklet prvides infrmatin n envirnmental hazards that may affect a prperty. The envirnmental hazards cvered by the bklet are asbests, frmaldehyde, hazardus waste, husehld hazardus waste, lead, mld, and radn. PRACTICE POINTER. C.A.R. publishes a three-part bklet which includes,

17 as the first part, the 2005 editin f "Residential Envirnmental Hazards: A Guide fr Hmewners, Hmebuyers, Landlrds and Tenants." Applicability The envirnmental hazards bklet is designed t be used when selling r renting real prperty, but, believe it r nt, this particular bklet is nt a mandatry disclsure in any transactin. The Seller's and Agent's Rles Althugh delivery f the envirnmental hazards bklet is purely vluntary, it is highly recmmended. This bklet prvides a valuable shield frm liability. By law, delivery f the bklet will be deemed t be adequate t infrm a buyer abut the envirnmental hazards described in the bklet. N additinal infrmatin is required. This prtectin applies t bth sellers and their agents, either f whm can prvide the bklet t the buyer. Because the law des nt specify any particular methd f delivery, any reasnable means f getting the bklet int the buyer s hands shuld be acceptable. PRACTICE POINTER. T dcument delivery f C.A.R.'s three-part bklet, agents may use the buyer's acknwledgement f receipt prvided n the last page f the bklet. Disclsure f Actual Knwledge Delivering the envirnmental hazards bklet des nt satisfy a seller s r agent s duty t disclse any actual knwledge f envirnmental hazards as required by the TDS law r as a material fact that affects the value r desirability f the prperty. It s understandable fr a seller r agent t feel reluctant t flag envirnmental hazards issues fr prspective buyers. Hwever, when in dubt, it is better t err n the side f cautin by disclsing what reasnably might be cnsidered an envirnmental hazard, because the failure t d s may result in dire legal cnsequences. Surce: Califrnia Civil Cde Sectin Self-Check Questins 1. The envirnmental hazards bklet satisfies the disclsure duties f a seller and his r her agent with regard t envirnmental issues addressed in the bklet. a. True b. False

18 2. The envirnmental hazards bklet des nt satisfy a seller's r agent's duty t disclse any actual knwledge f an envirnmental hazard. a. True b. False Lead-Based Paint Hazards Overview Lead pisning is a very serius cncern. In yung children, it can cause irreversible health effects, including brain damage, mental retardatin, cnvulsins, and even death. Yet, accrding t the U.S. Department f Husing and Urban Develpment (HUD), nearly ne millin children under 6 years f age have lead in their bld abve the level f cncern. T prtect families frm expsure t lead, Cngress passed the Residential Lead-Based Paint Hazard Reductin Act f 1992 (als knwn as Title X). This law directed HUD and the U.S. Envirnmental Prtectin Agency (EPA) t establish disclsure standards when selling and leasing hmes built befre Because these are federal rules, they are smewhat different frm what yu ve encuntered under Califrnia law. Let s take a clser lk. Applicability This disclsure law applies t bth sales and leases (including mntht-mnth tenancies) f target husing which includes mst residential prperties built befre The fllwing transactins and prperties are exempt frm the lead disclsure requirements: Husing built after PRACTICE POINTER. In case anyne is wndering, 1978 was the year the gvernment banned the use f lead paint in husing. Nn-residential prperties. PRACTICE POINTER. Nte that lead disclsures are required fr the sale f multi-family target husing, such as apartment buildings (even thse with 5 units r mre).

19 Husing fr the elderly, unless any child under the age f 6 lives there. Husing fr the disabled, unless any child under the age f 6 lives there. Zer-bedrm dwellings, such as studi apartments, drmitries, and rentals f individual rms in residential dwellings. Sale f target husing thrugh freclsure. Lease f target husing fund free f lead-based paint by a certified inspectr. Shrt-term lease f 100 days r less, where n renewal r extensin can ccur (e.g., a fixed term vacatin rental). Persnal prperty mbilehmes are nt specifically addressed by this law. Hwever, HUD has indicated that it des cnsider pre-1978 mbilehmes t be cvered by the law. The Seller's Duties A seller has a lt f bligatins under this law, but they are quite manageable in practice if gruped int fur main tasks as fllws: 22. Prvide the buyer with an EPA-apprved lead hazard infrmatin pamphlet. PRACTICE POINTER. T satisfy this first requirement, yu can use C.A.R. s three-part bklet which includes, as the secnd part, the pamphlet entitled "Prtect Yur Family frm Lead in Yur Hme." The ther tw sectins are "Residential Envirnmental Hazards: A Guide fr Hmewners, Buyers, Landlrds and Tenants" and "The Hmewners Guide t Earthquake Safety," bth discussed elsewhere. 23. Prvide the buyer with a 10-day pprtunity t cnduct an inspectin r risk assessment fr lead-based paint and lead-based paint hazards. The parties can mutually agree in writing t change the time frame fr inspectin, r t waive the inspectin entirely, by indicating s in writing. PRACTICE POINTER. C.A.R. s Califrnia Residential Purchase Agreement and Jint Escrw Instructins (Frm RPA-CA) cmplies with this secnd requirement by prviding a 17-day pprtunity fr the buyer t inspect the prperty, but the parties can change the timeframe if desired Fill ut and sign a disclsure statement attached t the purchase cntract, which includes a standard Lead Warning Statement and ther infrmatin. The seller must deliver this disclsure statement t the buyer fr signature, and then retain a cpy f the cmpleted statement fr at least 3 years.

20 PRACTICE POINTER. C.A.R. s standard frm Lead-Based Paint and Lead- Based Paint Hazards Disclsure, Acknwledgment and Addendum (Frm FLD) may be used t satisfy this third requirement. 26. Disclse the presence f any knwn lead-based paint r lead-based paint hazards in the prperty, and prvide any available recrds r reprts (including cmmn areas). The seller shuld als disclse any additinal infrmatin available, such as the basis fr determining the presence f lead-based paint r lead-based paint hazards, its lcatin, and the cnditin f the painted surfaces. PRACTICE POINTER. T satisfy this furth requirement, sellers may use C.A.R. s Standard Frm Real Estate Transfer Disclsure Statement (Frm TDS) and attach any available recrds r reprts. The first questin in Sectin IIC f the TDS prmpts the seller t disclse any knwledge f substance that may be an envirnmental hazard, including lead-based paint. Despite the numerus tasks related t lead-based paint hazards, sellers may be glad t knw abut the things they need nt d. A seller has n bligatin under this law t cnduct any evaluatin, reductin, r eliminatin f leadb a s e d p a i n t h azards. PRACTICE POINTER. HUD regulates lead-based paint hazards affecting federal husing under its Lead Safe Husing Regulatin. This law requires the evaluatin and reductin f lead-based paint hazards in husing that is wned and being sld by the federal gvernment (e.g., HUD s REO), r receives financial assistance frm the federal gvernment (e.g., Sectin 8 rental assistance). This law des nt make any substantive changes t existing lead disclsure rules. T btain a cpy f the Lead Safe Husing Regulatin, g t HUD s website at r cntact the Natinal Lead Infrmatin Center at LEAD. The Landlrd's Duties With ne exceptin, landlrds f target husing must perfrm the same tasks fr their tenants as sellers must perfrm fr their buyers (as discussed abve). The ne exceptin is that landlrds are nt legally required t prvide tenants with an pprtunity t inspect the prperty fr leadbased paint r lead-based paint hazards. PRACTICE POINTER. Althugh this disclsure law des nt require landlrds t abate lead, the presence f lead culd be a habitability issue under Califrnia law which may require remval depending n the facts and circumstances.

21 When Must Cmpliance Occur? Federal law requires sellers/lessrs t perfrm these disclsure activities befre entering int a sales r lease agreement. This rule des nt cincide with the general practice in Califrnia f prviding disclsures after acceptance f an ffer t purchase. Thus, HUD/EPA apprved C.A.R. s request fr lead disclsures t be prvided after a sales cntract is entered int, but nly if the fllwing tw cnditins are met: The buyer has a cntractual right t cancel the transactin after receipt f the lead disclsures; and The buyer s 10-day pprtunity t inspect des nt begin t run until after receipt f the lead disclsures. PRACTICE POINTER. C.A.R. s Standard Frm Califrnia Residential Purchase Agreement and Jint Escrw Instructins (Frm RPA-CA) satisfies these HUD/EPA guidelines s that sellers d nt have t prvide lead disclsures until after they enter int a sales cntract. First, the RPA-CA requires the seller t deliver disclsures within seven days after acceptance f the cntract. Secnd, the RPA-CA prvides the buyer with a ttal f 17 days after acceptance t inspect the prperty and cancel the cntract. The Agent's Duties Agents invlved in sales r lease transactins have three general respnsibilities in regards t lead-based paint and lead-based paint hazards disclsures. First, agents must infrm sellers/lessrs f their bligatins under this law. Secnd, agents must ensure that sellers/lessrs have cmplied with their bligatins, r persnally ensure cmpliance. An agent wh perfrms these first tw tasks will nt be respnsible fr any lead-based paint r leadbased paint hazards that the seller r lessr knws, but fails t disclse t the agent. Third, the agent must prvide a statement that: (1) the agent has infrmed the seller f the seller s bligatins; and (2) the agent is aware f his r her wn duty t ensure cmpliance. BUYER S AGENT: These agency duties d nt apply t a buyer s agent if the buyer pays that agent s entire cmpensatin. PRACTICE POINTER. Yu dn t have t try t memrize the agent s three general respnsibilities. They are all set frth in the Listing Agent s sectin f C.A.R. s Lead-Based Paint and Lead-Based Paint Hazards Disclsure, Acknwledgment and Addendum (Frm FLD). Surce: 42 U.S.C. 4852d and 24 C.F.R. Part 35 (subpart H). Self-Check Questins

22 1. Under the federal lead-based paint disclsure law, the seller must: a. prvide the buyer with the apprpriate pamphlet explaining pssible hazards f lead in the hme b. give the buyer a 10-day pprtunity t test fr lead c. disclse any lead-based paint and lead-based paint hazards f which the seller is aware d. all f the abve 2. The federal lead-based paint disclsures apply t the fllwing: a. residential prperty cnstructed after 1978 b. husing fr the elderly if a child under 6 des nt live there c. leases (including mnth-t-mnth tenancies) d. all f the abve The Hmewner's Guide t Earthquake Safety and the Cmmercial Prperty Owner's Guide t Earthquake Safety Overview Given the ntriety f Califrnia s earthquakes, requiring sellers t tell buyers there might be an earthquake may seem unnecessary. Hwever, the intent f this disclsure law is t teach peple hw t ensure the strength f their prperties, because ur past experiences have prven that earthquakepreparedness saves lives and prperty. T accmplish this gal, the Califrnia Seismic Safety Cmmissin drafted the Hmewner s Guide and the Cmmercial Guide t prvide general infrmatin abut earthquakes, and specific infrmatin abut hw t find and fix earthquake-related weaknesses in real prperties. PRACTICE POINTER. C.A.R. publishes a three-part bklet which includes, as the third part, "The Hmewner s Guide t Earthquake Safety." The ther tw sectins in this three-part bklet are "Residential Envirnmental Hazards: A Guide fr Hmewners, Buyers, Landlrds and Tenants" and "Prtect Yur Family frm Lead in Yur Hme," bth discussed abve. C.A.R. als publishes a separate bklet entitled "The Cmmercial Prperty Owner s Guide t Earthquake Safety" (2006 editin). Applicability

23 The earthquake bklets are mandatry disclsures fr the fllwing transactins: HOMEOWNER S GUIDE. Unless exempt, a seller must deliver the Hmewner s Guide if the prperty: Has ne-t-fur residential dwellings units; Was built befre January 1, 1960; and Is made f cnventinal light-frame cnstructin. COMMERCIAL GUIDE. Unless exempt, a seller must deliver the Cmmercial Guide if the prperty: Was built befre January 1, 1975; Is made f precast cncrete r reinfrced/unreinfrced masnry with wd frame flrs r rfs; and Is lcated within any cunty r city. PRACTICE POINTER. Dn t be fled by the wrd cmmercial. Despite its name, the Cmmercial Guide may be a required disclsure fr bth cmmercial and residential prperties built befre 1975 f precast cncrete r reinfrced/unreinfrced masnry. EXCEPTIONS: The exemptins t this law are generally, but nt exactly, the same as the TDS exemptins. The exemptins t bth the Hmewner s Guide and Cmmercial Guide are as fllws: Transfers in subdivisins subject t the public reprt requirement. Transfers pursuant t curt rder, such as sales by prbate curt rder, writ f executin, bankruptcy trustee, eminent dmain, r decree f specific perfrmance. Transfers t lenders by brrwers in default, t buyers under pwer f sale, r t buyers by lenders wh have acquired the prperty (i.e., REO sales). Transfers by a fiduciary administrating a decedent s estate, guardianship, cnservatrship r trust. Transfers frm ne c-wner t anther. Transfers t a spuse (e.g., divrce). Transfers t smene in the lineal line f cnsanguinity (e.g., frm parent t child, r frm grandparent t child).

24 Transfers by the Cntrller under the Unclaimed Prperty Law. Transfers by certain tax sales. Transfers where the buyer agrees in writing that the building will be demlished within ne year f transfer. The Seller's Duties Sellers must prvide the Hmewner s Guide r Cmmercial Guide, where applicable, t their buyers as sn as practicable befre transfer f title. Sellers prviding the Hmewner s Guide have ne additinal task. They must cmplete and deliver the Residential Earthquake Hazards Reprt, which is a shrt questinnaire abut the structural deficiencies and earthquake weaknesses, if any, in the prperty. PRACTICE POINTER. The Residential Earthquake Hazards Reprt is a nepage frm fund in the back f the "Hmewner s Guide t Earthquake Safety." Delivery f the Hmewner s Guide r Cmmercial Guide will be deemed t be adequate t give a buyer general infrmatin abut gelgic and seismic hazards described in that bklet and mitigating measures that might be cnsidered. N additinal infrmatin is needed. This valuable shield frm liability pertains t bth sellers and their agents. PRACTICE POINTER. This liability shield is apparently applicable t all transfers f real prperty. Thus, even if a certain transactin is exempt, the seller and agent may nevertheless want t benefit frm the prtectin by delivering the Hmewner s Guide r Cmmercial Guide t the buyer. The Agent's Duties This law requires the real estate agent t prvide the Hmewner s Guide t the seller, wh, in turn, is bligated t give it t the buyer. There is, ddly enugh, n specific legal requirement fr the agent t deliver the bklet t the buyer directly. Fr the Cmmercial Guide, the law requires either the seller r agent t deliver the bklet t the buyer. PRACTICE POINTER. Fr the Hmewner s Guide, even thugh the law des nt specifically require the agent t deliver it directly t the buyer, a prudent agent wuld, f curse, make sure the buyer receives it, ne way r anther. Surce: Califrnia Gvernment Cde Sectins et seq. and Califrnia Civil Cde Sectin (Hmewner s Guide). Califrnia Gvernment Cde