Full Disclosures In Real Estate Transfers

By:   Roman P. Mosqueda, Esq.

            As  a real estate attorney and licensed real estate broker, this Author has handled, and is handling, court cases on rescission of the sale of real property for failure to disclose known building code and zoning violations,  defects, hazards, and problems that affect the price or desirability of the property.

            Indeed, disclosures upon transfer of residential property apply “to any transfer by sale, exchange, installment land sale contract, … lease with an option to purchase, any other option to purchase, or ground lease coupled with improvements, of real property or residential stock cooperative, improved with or consisting of not less than one nor more than four dwelling units,” under Section 1102 of the California Civil Code.

            A residential real estate is defined as one to four units of light frame construction.   The requirements of disclosure in real estate transactions thereon have continuously increased since the early 1970’s.   The phrase “caveat emptor” (buyer beware) has been replaced by “full disclosure” by  the seller.

            But a buyer or transferee is still well-advised to include a “further-approval contingency” to confirm the disclosures or cancel the transaction, in the offer and the purchase agreement, because real estate licensees have no duty to investigate public records.

Disclosure Legislation

In California:

            In 1972, the California Legislature passed the Alquist-Priolo Special Study Zone Act, which requires the real estate agent of the seller, or the seller, if no agent is involved, to disclose to a potential buyer at the time an offer is made or accepted, that the property is located in an Earthquake Fault Zone.

            This statute requires the State Geologist to establish regulatory zones, known as Earthquake Fault Zones, around the surface traces of active faults and to issue appropriate maps.  Earthquake Fault Zone maps may be purchased from counties or cities, or viewed at California Geological Survey Offices.

            In 1991, the Earthquake Fault Zone disclosure was expanded to require the seller to disclose earthquake weaknesses of residential real estate built prior to January 1, 1960, by providing the buyer with a copy of “The Homeowner’s Guide to Earthquake Safety,” and of “Residential Earthquake Hazards Report,” disclosing known structural deficiencies.

            Also effective 1991, the Seismic Hazard Mapping Act requires disclosure of real estate property in danger of liquefaction and landslides.

            In 1998 and thereafter, The Natural Hazard Disclosure Statement (NHD) is required to disclose six disaster zones: flood hazard zone, dam inundation area, very high fire hazard severity zone, wildland fire area, earthquake fault zone and seismic hazard zone.  The seller or seller’s agent has the duty to investigate, discover and disclose if a property is in any of the six hazard zones.

Hazardous Substances

Disclosures:

            In 1990, the California Civil Code was amended  to require the seller to disclose any knowledge of any substance, material, or product on the property that could be an environmental hazard, in the seller’s Transfer Disclosure Statement (TDS).

            Any such known hazards from asbestos, radon, lead-based paint, formaldehyde, and chemical and fuel storage tanks on the residential real estate must be disclosed to the buyer.  A consumer information booklet is also delivered to the buyer or transferee.

            The seller or seller’s agent is obligated to conduct a reasonably competent, visual inspection of accessible areas.   They must disclose any visual signs that may indicate the presence of any hazard or defect.  In case of doubt, it is safer to disclose any suspected, but unverified, hazards and defects in or within the proximity of the property, in the Transfer Disclosure Statement or elsewhere.

Other Miscellaneous

Disclosures:

            Additional required disclosures are:  (a) disclosure notice if the property is the subject of a continuing lien securing special taxes, pursuant to the Mello-Roos Community Facilities Act, (b) in common interest development like subdivision, the buyer must be provided with the “Common Interest Development General Information,” (c) Seller Financing Disclosure Statement by the real estate licensee who arranges seller financing, (d) disclosure of yearly day and night average sound levels of airport noise on a property in the vicinity of an airport, pursuant to the Aviation Safety and Noise Abatement Act, (e) written statement of smoke detector compliance, (f) written notice that the buyer can access the database information on registered sex offenders, and (g) any death within three years prior to the date of transfer of the property.

            If any disclosure (TDS) required to be made under Article 1.5 of the Civil Code on disclosure is delivered after  the execution of an offer to purchase, the buyer or transferee has three days after delivery in person or five days after delivery by mail, to terminate his or her offer, by delivery of a written notice of termination to the seller or transferor’s agent, under Section 1102.3 of the Civil Code.

            And pursuant to Section 1710.2 of the Civil Code, a seller, seller’s agent, or buyer’s agent has no affirmative duty to voluntarily disclose that an occupant of the property was afflicted with HIV virus or AJDS, or the occurrence or manner of death of an occupant, which occurred more than three (3) years prior to the date of the offer to purchase, lease, or rent the real property.

            But on direct inquiry by a buyer, a seller or seller’s agent must disclose his or her knowledge of facts “concerning deaths on the real property,” under  Section 1710.2(d) of the Civil Code. 

            There is a four-year statute of limitations within which to file suit for breach of  written contract, counted from breach by a  seller, a two-year statute of limitations against a real estate licensee for negligent failure to disclose, counted from the date disclosure should have been made, and a three-year statute of limitations for intentional misrepresentation, commencing on the date of discovery of the falsity of the representation by the seller or seller’s agent.

            In summary, the disclosure requirements have expanded beyond known building code and zoning violations and defects in the structures on the property to cover known, should-be-known, and suspected geological and environmental hazards on and within the proximity of the property, and even deaths within three years on the property.

            (The Author, Roman P. Mosqueda, is a real estate attorney and a licensed real estate broker in California since 1999.  He has personally represented plaintiffs-buyers, as well as, defendants-sellers in rescission of sale of residential property for failure to make disclosures).