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Property sellers required to provide disclaimer

LAW REVIEW, Jim Porter

As all of you real estate types know, when someone is selling their home, they are obligated to provide a Transfer Disclosure Statement (TDS) to the buyer listing the shortcomings of the property. A new case discusses what happens when that form is not used.

Home sale

Realmuto contracted to sell his home in Alpine, Calif., to Gagnard and Savoy. The buyers were investors who planned to transfer the property to the Cuyapaipe Band of Mission Indians for possible development as a casino. Realmuto was aware that the buyers did not intend to live in the home – meaning the condition of the home was not important.

TDS form

The California civil code requires the seller of one to four dwelling units to provide a written disclosure statement to the buyer in the form specified in the code describing the condition of the home and any defects, encroachments, easements, fill, drainage problems, neighborhood noise, lawsuits against the seller, flooding and other important matters that may affect the buyer’s decision to purchase.

The buyer has three days after delivery or five days after mailing of the TSD form to terminate his or her offer to purchase the residence, i.e. the buyer has three days to back out after the property’s flaws are disclosed.

The disclosure law was enacted in 1985. In response, sellers began making their sales “as is” to get around the mandatory disclosure requirement, so the law was amended to be non-waivable.

Seller sues

The potential sale to the Indian tribe fell through, so buyers Gagnard and Savoy backed out on the purchase contract after the contingency period had run, without a legal right to do so. Seller Realmuto was not happy about that and sued for “specific performance” – to make the buyers perform on the contract and close escrow.

The buyers countered that they were not obligated to purchase the property because they never received a Transfer Disclosure Statement, an event that had to happen before they were obligated to close escrow.

Case of first impression

Surprisingly, it appears this particular issue had never been litigated in California: Does the seller still have to give a disclosure statement to the buyer when the buyer doesn’t intend to use the property for a residence? Logically you would think not.

The trial court and the court of appeal ruled in favor of the buyer using the following legal logic: The law requires a disclosure statement which may not be waived, which was not provided, the buyer then has three days to terminate the purchase, meaning the buyer is not obligated to purchase.

The court simply refused to leave any opportunity for sellers not to deliver disclosure statements – as a matter of policy, even though in this case disclosing the condition of the home, which was to be demolished would have been meaningless.

Jim Porter is an attorney with Porter-Simon, with offices in Truckee, South Lake Tahoe and Reno. He is a mediator and was the Governor’s appointee to the Bipartisan McPherson Commission and the California Fair Political Practices Commission. He may be reached at porter@portersimon.com or at the firm’s Web site http://www.portersimon.com.


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