Jim Porter: Real estate transfer disclosure law update
I’m not sure how to follow up my colonoscopy column the week before last, which if you haven’t read (and you are a guy), check it out for a good laugh.
Today’s comparatively legal (boring) column is for real estate agents. The rest of you readers may skip this column and go right to the Letters to the Editor, or to the editor’s lately provocative Editorial piece.
TRANSFER DISCLOSURE STATEMENT
As you real estate agents know, sellers of residential property and their agents must provide certain disclosures to would-be buyers.
Specific disclosure requirements were codified in 1987. The precise Transfer Disclosure Statement (TDS) is incorporated in Civil Code Section 1102, and is widely available on residential real estate sales forms including the California Association of Realtors (CAR) preprinted forms.
It’s largely a check-the-box form: Are you (Seller) aware of any of the following: Fill … Flooding … Zoning Violations, etc.
Failure to use the form allows a buyer to back out of a sales contract, and buyers are given three days after delivery of the form to cancel the purchase.
That’s the basic law. So here’s the question: What if the property being sold is “mixed use?” It has a commercial building and a residential duplex. Is a TDS required?
What if the purchase contract recites that the property is sold “as is”? Does that excuse the seller from providing the TDS form?
Those were the facts in Richman v. Hartley, where Richman, who did not provide buyer Hartley with a TDS form, sued Hartley for specific performance of their contract to make him purchase.
Hartley defended arguing that without delivery of a TDS he had no obligation to purchase the mixed-use property, he could back out.
You be the judge.
The TDS law applies, with a handful of specified exceptions, to sales of “real property … improved with or consisting of not less than one nor more than four dwelling units.”
The obvious question for the trial court and Court of Appeal was whether a mixed-use sale fell within or outside of that definition in Section 1102.
Hartley argued a mixed-use sale was a residential sale and he never received the TDS, so he could walk away, while Richman argued the sale of a duplex and commercial building was not a pure residential sale so the form was not necessary.
WAIVER OF TDS?
Richman also contended that because the contract terms were “as is” the TDS disclosure was waived. Sorry Richman, in 1994 the Legislature made the TDS form non-waivable.
You know the answer. The trial court and the Court of Appeal had no trouble finding the TDS law applied to any transfer of real property improved with not more than four residences, just as the Code stated.
Seller Richman could not force Hartley to purchase because Hartley had not been provided a TDS form.
DISCLOSE, DISCLOSE, DISCLOSE
There is a huge and obvious lesson in this case. When assisting clients with residential sales, and commercial sales as well, over disclose.
When using the TDS form, don’t let your seller-client casually check “no problem” to all the questions. After someone lives in a house for years, the temptation is to check the boxes that everything works, when in fact, there are all sorts of flaws and matters of interest to a buyer.
Carefully go over the TDS form with your clients. There’s no downside to over disclosing.
Send me $100 for that sound advice.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee, Tahoe City and Reno. Jim’s practice areas include: real estate, development, construction, business, HOAs, contracts, personal injury, mediation and other transactional matters. He may be reached at email@example.com or http://www.portersimon.com.