General Statutory Disclosure Requirements in Real Estate Sales
If the seller is being represented by an agent in the transaction, then the agent must ask the seller about the condition of the property and fill out the form accordingly. (Civil Code § 1102.6.) The agent must also complete a reasonable and diligent visual inspection of the property and note on the disclosure form if there are any items for disclosure. (Id.) The seller or the agent can also amend any disclosures in writing. (Civil Code § 1102.9.)
In most real estate sales, the realtor or broker has a duty to disclose certain things about the property. California law has statutory requirements for a seller to disclose information regarding a property. It is important to note that the statutory disclosure requirements only apply to single-family residential property. (Civil Code § 1102.) These disclosure requirements cannot be waived. (Id.) The seller is required to make these statutory disclosures in “good faith,” or basically with honesty. (Civil Code § 1102.7.)
What Transactions Are Exempt from Disclosures?
In several types of real estate transactions, the seller does not have to make the usual statutory disclosures. In fact, many types of sales are expressly exempt from statutory disclosures.
Generally, any court-ordered sale is exempt from the statutory disclosure requirements. (Civil Code § 1102.2.) Such sales include probate sales, trustee’s sales, judicial foreclosure sales, execution sales, eminent domain sales, and sales from a decree for specific performance. (Id.) Even probate sales administered under the IAEA are exempt. (Id.) Although not explicitly listed, a court-ordered partition sale or divorce sale would also fall under this exemption.
In addition, non-judicial foreclosure sales made under a power of sale clause are exempt. (Id.) Sales by a mortgagee or a beneficiary under a deed of trust who has acquired the real property at a non-judicial foreclosure sale or acquired by a deed in lieu of foreclosure are also exempt. (Id.) Sales or transfers to a mortgagee by a mortgagor who is in default, sales to a beneficiary of a deed of trust by a trustor or successor in interest who is in default, and any foreclosure sale after default are all exempt as well. (Id.)
Divorce sales or transfers between spouses are also exempt, as are sales or transfers between co-owners. (Id.) Sales or transfers to or from any governmental entity are exempt. (Id.) The sale, creation, or transfer of any lease is also exempt, besides leases with an option to purchase or a ground lease with improvements. (Id.) As previously mentioned, under California law the sale or transfer of property that is not a single-family residence is exempt from the statutory disclosure requirements. (Id.)
The statutory disclosure requirements do not displace any common law disclosure obligations. Even though certain sales are exempt from statutory disclosure requirements, the seller still has a duty for any common law disclosures.
Even with these disclosure obligations, the buyer must still take steps to inform and protect himself. Additionally, if the statutory exemptions do not apply then the statutory disclosure requirements cannot be waived. Several California cases showcase and clarify these aspects of the law.
An example of a statutory exemption from disclosure in action is Assilzadeh v. California Federal Bank (2000) 82 Cal.App.4th 399. Here, a Defendant bought property from a non-judicial foreclosure sale and subsequently sold that property to the Plaintiff. (Id., at 406.) The other two Defendants were acting as real estate brokers for the property. (Id.) Before the close of escrow, the Defendants notified the Plaintiff that the homeowners’ association filed a lawsuit against the developer of the property for construction defects. (Id.)
The Plaintiff later sued, alleging that the Defendants failed to fully disclose the details of the specific defects in the construction defect lawsuit involving the property, which affected the property’s value. (Id., at 409.) The trial court granted summary judgment in favor of the Defendants, ruling that they satisfied their disclosure obligations. (Id.)
On appeal, the Plaintiff argued that there were triable issues of material fact as to whether the Defendant who sold the property breached its duties by failing to disclose all of the details of the lawsuit. (Id.) The Court of Appeal ruled that the property was exempt from the statutory requirements because that Defendant purchased the property at a non-judicial foreclosure sale. (Id.) The Court of Appeal also concluded that the Defendant had met its common law disclosure obligations, since it told the Plaintiff as much as it knew about the lawsuit. (Id., at 411.)
The Plaintiff further argued on appeal that the two Defendants who brokered the deal breached their duties in failing to fully disclose the details of the lawsuit. (Id., at 412.) Brokers generally have a duty to conduct a diligent and competent visual inspection of the property and to inform the buyer of any facts that would materially affect the property’s desirability or value. (Id., at 413.) Prior to the close of escrow, the brokers did not have any documents related to the litigation. (Id.) The Court of Appeal held that the brokers conducted inspections in accordance with their duties and they satisfied their duties of disclosure by telling the Plaintiff about the existence of the lawsuit. (Id., at 414.)
Assilzadeh is illustrative of how the statutory duties to disclose can interact with the common law duty of disclosure. Though the transaction was exempt from the statutory disclosure requirements, the seller still had to comply with its common law disclosure obligations. Even with the common law disclosure obligations though, it is the buyer’s responsibility to protect himself and make informed decisions on the purchase.
An Example
“Shawn” owns a single-family residential home. The home, however, has cost him too much to maintain so he wants to sell it. Shawn puts the home up for sale, and his realtor begins seeking purchasers. A prospective buyer, “Julie”, makes an offer for the home that Shawn accepts.
The realtor asks Shawn about the property’s condition in accordance with the California transfer disclosure statement. Shawn makes all of the required disclosures in good faith, and the realtor visually inspects the property. They sign and deliver the transfer disclosure statement to Julie before the title is transferred.
Shawn also knows that there are structural problems with the home’s pipes that Julie would not be able to reasonably observe. He discloses this to Julie, which is Shawn’s common law duty. Afterwards, the title is transferred to Julie, who now owns the home.
After a while, Julie dies but does not have any heirs in her will. Her home becomes subject to a probate sale. The representative administering the sale follows the probate sale process, and Julie’s home is sold to a prospective buyer through a private sale.
The representative does not have to disclose anything under the statutory disclosure requirements, since the property is being sold through a probate sale. The representative does, however, still have a common law duty to disclose known material facts that affect the property’s value and desirability. The representative knows that the home’s pipes still have problems, which the prospective buyer cannot reasonably observe. The representative discloses this to the buyer before the title is transferred, fulfilling the representative’s common law disclosure obligation.
How Can the Attorneys at Underwood Law Assist You?
There are many different disclosures that the seller or the seller’s agent must make to the prospective buyer before finalizing the sale of residential real property. The California statutes have a standard form for sellers to fill out, along with more specific disclosure requirements for unique situations. Even when a sale may be exempt from California’s statutory disclosures, sellers and their agents still have a common law duty of disclosure.
As each case is unique, litigants would be well-served to seek experienced counsel familiar with the ins and outs of property taxes and the law surrounding them. At the Underwood Law Firm, our knowledgeable attorneys are here to help. If you are seeking to buyout your cotenants interest in your property, are worried about whether you are subject to a tax-reassessment, or if you just have questions, please do not hesitate to contact our office.
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