If you are selling or leasing your home, you must comply with the Real Estate Transfer Disclosure Law. That law requires that sellers provide the prospective buyer with a Real Estate Transfer Disclosure Statement (“TDS”). The obligation to provide a prospective purchaser with a TDS is imposed on all owners of real property who enter into contracts to sell, exchange or lease residential property. The residential property subject to this requirement is residential property “improved with or consisting of not less than one nor more than four dwelling units.” California Civil Code §1102 (a). The statute also applies to mobile homes and manufactured homes, as well as to typical residential structures. See California Civil Code §1102 (b).
Specific Requirements of a Real Estate Transfer Disclosure Statement
Section I of the TDS simply requires the seller to provide the buyer with copies of any reports of inspections conducted on the property. Section II of the TDS that the seller make certain representations to the buyer concerning specified aspects of the property. Part A of Section II requires the seller to state whether the property has certain specified items, such as range, dishwasher, smoke detector, oven, trash compactor, satellite dish, and a host of other specified items which cover virtually any appliance or amenity one can think of. The seller must also state whether any of these items are, “to the best of Seller’s knowledge,” not in operating condition.
Part B of Section II requires the seller to state whether he is “aware” of any significant defects/malfunctions in a number of areas of the property, such as interior walls, exterior walls, windows, slabs, ceilings, doors and several other specified items. If the seller is aware of any such defects or malfunctions, he or she must provide an explanation of the nature and extent of the defects/malfunctions.
Part C of Section II of the TDS requires the seller to state whether he or she is “aware” of certain additional items, such as whether there are any environmental hazards on the property, walls or fences adjoining other properties, easements, unpermitted room additions, fill, CC & Rs, flood, drainage or grading problems, and several other conditions affecting the property.
Legal Effect of a Real Estate Transfer Disclosure Statement
The TDS is not a guarantee or warranty with respect to the items the seller must disclose. Rather, it is a tool to enable prospective buyers to decide whether they wish to purchase the property. The TDS requires the seller to disclose only specified things of which the seller is “aware.” Consequently, if, for instance, the property is built on fill, or the walls have lead-based paint on them, and the seller is not aware of these facts, the seller has not violated the law by failing to disclose these conditions.
Purchase and Sale Agreements often include a provision that the property is sold “as is” and with no warranties. Sellers have often attempted, unsuccessfully, to defend themselves from buyers’ lawsuits for failure to disclose significant problems with the property, by arguing the buyer agreed to purchase the property “as is,” meaning, with all its faults. However, the courts have ruled that an “as is” provision in a Purchase and Sale Agreement is not a defense to a claim of violation of the transfer disclosure law. And importantly, a buyer may not waive his or her right to receive the disclosures mandated by the transfer disclosure law. Any such waiver violates public policy and is void.
So long as the seller discloses problems of which he or she is aware, an “as is” provision will protect him or her from any claims by the buyer that the property contained certain significant defects. That is true not only with respect to defects the seller disclosed, but also with respect to defects the seller did not disclose, so long as the seller was not “aware” of those defects. In addition, if a prospective buyer makes an offer to purchase a property before the seller provides him or her with the TDS, the prospective purchaser may withdraw his or her offer within three days after the TDS is personally delivered to him or her, or five days after the TDS is delivered to him or her by deposit in the mail.
Finally, the fact that a seller has failed to disclose an item he or she is aware of and is required to disclose, does not in and of itself entitle a buyer to rescind his or her purchase of the property. However, it does give the buyer a right to sue the seller for damages. The measure of damages is the difference between what the buyer paid for the property and the fair market value of the property. By this measure, if the value of the property, even with the defects/malfunctions not disclosed to the buyer, is the same as or greater than the purchase price, the buyer will have no damages.
Other Remedies for Misrepresentation by a Seller
The Real Estate Transfer Disclosure Law is intended to add to, and not supplant or change previously existing law. Thus, if the seller, for instance, makes intentional misrepresentations to the buyer concerning the property, and these misrepresentations are material, and not simply minor, the buyer may rescind the purchase contract, so long as he or she does so promptly upon learning of the misrepresentation.
The attorneys at Gehres Law Library are experienced in real estate litigation as well as business litigation, and provide a free initial consultation to those who have been sued, or are contemplating filing a lawsuit concerning a real estate matter. Browse our website for more information about our San Diego business lawyers or contact us today for your complimentary evaluation.