Unit 7 Disclosures in Real Estate

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• Context: Caveat emptor is fading; consumer protection laws shift disclosure duty to seller and broker.
• Statutory disclosures apply to the sale of 1 ext{-}4 residential property; sellers must provide buyers with disclosures/reports about property condition and known title matters.
• Disclosures can be statutory (required by law) or optional (may be requested by buyers or lenders).
• Real estate agents guide all parties through the disclosure requirements.
• Learning objectives include: 6A indicate disclosures required in a real estate transfer; 6B recall subdivision disclosures under federal/state law; 6C name other pertinent disclosures.

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• Easton v. Strassburger establishes a broker’s duty to perform a visual inspection and to disclose material facts.
• Red flags: observable signs of problems that should be investigated (e.g., cracks, stains, uneven floors).
• The Transfer Disclosure Statement (TDS) is a statutory disclosure sellers must provide; timely delivery is critical because buyers can cancel if not delivered within the contract timeframe.
• Listing brokers must ensure sellers understand their disclosure obligations and timeframes.

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• TDS details: sellers must disclose in writing all known material facts that affect property value, even if the home is sold “as is.”
• “As is” language notices patent defects but does not relieve the seller of latent (hidden) defects.
• Material facts that could affect desirability/value include: age/condition of structural/mechanical systems; security devices; easements/encroachments; room additions/alterations; building permits; flooding/soil problems.
• Environmental hazards disclosure is required for items such as asbestos, formaldehyde, radon, lead-based paint, mold, tanks, and contaminated soil or water.

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• Mold: mold spores are common; some molds produce mycotoxins, but no universal standards for toxicity exist; no special mold disclosure requirements, though mold was discussed in context of environmental hazards.
• Certification of visual inspection (AVID) and the TDS are part of the required documentation.

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• Timing for TDS delivery: usually obtained by the listing broker at listing and shared with the buyer before an offer; if delivered after an offer, buyer has 3 days (hand-delivered) or 5 days (mailed) to terminate.
• If multiple agents are involved, the agent who obtains the offer must deliver the disclosures.
• If reports from licensed professionals are relied upon, seller/agent liability may be limited; however, violations do not invalidate the transfer; damages may be recoverable.
• Exemptions from the TDS: transfers among co-owners, spouse-related transfers (marital dissolution), court/probate orders, foreclosure, government transfers, or the first sale of a newly constructed home in a subdivision with a public report delivered.

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• Transfer Disclosure Statement form (TDS) structure: part I coordinates with other disclosures; substituted disclosures may satisfy some obligations (e.g., Natural Hazard Disclosure Report).
• Substituted disclosures may include federal/state disclosures that cover similar topics.

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• Seller’s information section: disclosures come from seller’s knowledge; not a warranty by agents.
• Items to disclose include occupancy status, and a checklist of items such as appliances, systems, and safety features (e.g., smoke detectors, CO devices, etc.).
• If any items are not in operating condition, the seller must describe them.

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• Local Option Real Estate Transfer Disclosure Statement (LORETD S): optional form for local conditions that may affect use/enjoyment (e.g., Right to Farm, local nuisances).
• Exempt Seller Disclosures (ESD): optional/alternative disclosures when not all TDS requirements apply; can include additional items such as death on the property, meth contamination orders, industrial use zones, military ordnance locations, HOA matters, insurance claims, title issues, undisclosed material facts.

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• ESD contents include: death on the property within a defined period, methamphetamine contamination orders, industrial-use zone proximity, military ordnance, HOA matters, insurance claims, title issues, and other material facts.
• The seller certifies information as true to best knowledge; buyer acknowledges receipt.

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• Exempt Seller Disclosures (ESD) form specifics: used when a full TDS is not required but other disclosures are needed.
• Seller/landlord and buyer signatures verify disclosures and acknowledgments.

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• Stigmatized property disclosures: about events that affect perception but not necessarily physical condition; Civil Code §1710.2 governs death disclosures; AIDS/HIV disclosures are not required.
• Common stigmas: haunted properties, cemetery proximity, criminal activity, etc.

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• Megan’s Law notice: mandatory notice about public access to data on registered sex offenders; buyers encouraged to check Megan’s Law website during inspection period.
• Clean-up of illegal drug-labs: if contaminated, seller must disclose, attach orders as applicable; penalties for non-disclosure.
• Military ordnance: if property within approx. one mile of known ordnance locations, seller must disclose.

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• Condominium/HOA disclosures: seller must provide HOA documents, governing docs, financial statements, and other HOA-required disclosures.
• Insurance claims disclosure: order a CLUE report to show insurance claims in the last 5 years.
• Title matters and material facts: disclose known title issues; Natural Hazard Disclosure Law (NHD) requires disclosure of hazards; six statutorily specified hazard areas.

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• Natural Hazard Disclosure (NHD) requirements: NHD requires disclosure of hazards that may affect development, insurance, or disaster assistance; early disclosure is in the seller/listing agent’s best interest to avoid contract rescission.
• Special Flood Hazard Area (SFHA) and flood insurance implications; dam inundation areas; flood boundary maps.
• Areas of potential flooding are identified and disclosed; if a federal flood disaster occurred, buyer should be advised to obtain flood insurance.

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• California Natural Hazard Disclosure Statement (NHD) – Form details (NHD Form, CAR): applies to six hazard areas; it warns buyers that hazards may limit development/insurance/assistance; if third-party reports are used, additional notices may be included (airport, right to farm, mining, etc.).
• NHD is a separate disclosure from the TDS; the transfer should occur with both as applicable.

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• NHD content (continued): hazards include SFHA, dam inundation area, Very High Fire Hazard Zone, Wildland areas, Earthquake fault zones, Seismic hazard zones (e.g., liquefaction, landslides).
• The maps are estimates and not definitive; transferee/transferor may seek professional advice.

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• Very High Fire Hazard Zone disclosures and Wildland Fire Areas; Fire risk management requirements (brush clearance, firebreaks).
• Alquist-Priolo Earthquake Fault Zoning Act and Seismic Hazards Mapping Act: regulate construction near active faults and non-surface hazards.

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• Earthquake hazard maps created by the State Geologist; definitions of fault zones and seismic hazard zones; real property near fault lines or zones may face higher regulatory scrutiny.

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• Examples of past earthquakes used to illustrate hazard impacts on structures; disclosure considerations for earthquake-related hazards.

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• Informational booklets: require or allow buyers to receive educational booklets on environmental hazards, lead in the home, energy rating, and earthquake safety. The Combined Hazards Book can satisfy multiple booklet requirements.
• If hazards exist, sellers must disclose them on the TDS even if the booklets are provided.

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• Lead-based paint disclosures (pre-1978 housing): require pamphlets (Protect Your Family From Lead in Your Home) and lead-based paint disclosure forms (FLD); buyers have up to 10 ext{ days} to conduct a risk assessment/inspection unless contract states otherwise.
• For pre-1978 housing, sellers, landlords, and licensees have duties under the lead-based paint rules.

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• Lead-based paint disclosure forms (FLD): includes seller’s disclosure of known lead-based paint hazards; buyer acknowledgment; listing agent acknowledgment; and buyer’s receipt of pamphlet.
• Seller must provide any reports or records; risk assessment/inspection rights for buyers; certificate of non-foreign status interacts with FIRPTA rules.

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• Listing agent acknowledgment and buyer’s acknowledgment sections on FLD; ensures compliance with lead-disclosure requirements; certificates attached to contract; delivery timing matters for contract validity.

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• Seller/agent responsibilities and optional informational booklets (HERS, Lead, Environmental hazards, earthquake safety) help educate buyers; providing booklets can satisfy some disclosure obligations.
• Home Energy Rating System (HERS) informational booklet is optional; if provided, no further energy law disclosures are required beyond what is already stated in the TDS.

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• Homeowner’s Guide to Earthquake Safety booklet: mandatory delivery in certain situations (pre-1960 construction or masonry with pre-1975 features); otherwise voluntary delivery.
• Mello-Roos disclosure requirements: special district taxes impacting property taxes; buyers must be notified; notices may appear on the tax bill; 3-day/5-day rights to terminate when a Mello-Roos notice is delivered late.

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• Mello-Roos District details: impact of special assessments to fund public facilities; disclosures must include the existence of the special tax and Exhibit A describing facilities.
• Notice of Special Tax (and termination rights) details; the buyer can terminate within 3 ext{ days} if delivered before close, or 5 ext{ days} if mailed.

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• Mello-Roos continued: Districts financed by bonds; the seller must disclose if subject to Mello-Roos; the listing agent is not required to discover a district not known to them, but disclosure is required if known.
• Supplemental Property Tax Bill (SPT): a form (CAR SPT) to inform buyers that reassessed taxes may appear after ownership transfer.

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• Notice of Supplemental Property Tax Bill (SPT): explains that reassessment may lead to one or two additional tax bills; buyers must understand they are responsible for these bills; signed notice acknowledges receipt.

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• FIRPTA/Cal-FIRPTA: withholding requirements when the seller is a foreign person; generally 15% withholding of gross sales price; exceptions include certain price thresholds and residency status; non-foreign affidavits and withholding certificates can reduce or eliminate withholding.
• Escrow and title/closing professionals coordinate FIRPTA compliance; the buyer and escrow officer share responsibilities.
• Retrofit standards: include mandatory retrofits such as operable smoke detectors and bracing of water heaters; disclosure of compliance status to buyers.

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• Seller’s Affidavit of Nonforeign Status (FIRPTA) and/or California Withholding Exemption (AS): used to certify withholding exemptions or provide TIN for nonforeign status; required for some transfers; penalties for false statements.
• Buyer’s acknowledgment: receipt of the Seller’s Affidavit; disclosure of non-foreign status to the buyer.

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• Cal-FIRPTA overview: withholdings apply if the seller is foreign; forms and documentation handled by escrow; exceptions include principal residence and low sale price; consult IRS/FTB for specifics.
• Retrofit standards summary: applicable to the property; sellers must disclose compliance status on TDS or WHSD.

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• Water Heater Bracing and Smoke Detector Compliance: California Health & Safety Code requires bracing/anchoring of water heaters; H&S Code §19211; certification of compliance by transferor as of close of escrow; WHSD form may be used to document compliance; buyers acknowledge.
• Smoke detector compliance: Health and Safety Code §13113.8 requires operable detectors in single-family dwellings sold after certain dates; buyers acknowledge receipt of a smoke detector compliance statement.

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• Water Heater and Smoke Detector Statement of Compliance (WHSD): two parts: Water Heater Statement of Compliance and Smoke Detector Statement of Compliance; local requirements may be stricter; transferor certifies compliance; buyer acknowledges receipt.

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• Carbon Monoxide Detector Notice (CMD): as of 2011–2013, CO detectors required in applicable dwellings; disclosure of CO detectors on TDS if present; local requirements may impose additional duties; optional local retrofit requirements.

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• Carbon Monoxide Detector Compliance (CMD continuation): if CO detectors are not installed where required, penalties may apply; buyers should verify detector placement with professionals; local guidelines vary.
• Water-conserving fixtures (SB 407) disclosure: pre-1994 construction generally retrofitted to water-saving standards; by 2017 required for single-family residences to disclose whether fixtures are water-conserving or noncompliant; local retrofit ordinances may impose additional requirements.

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• Pest Control Inspection/Certification: not required by law, but if contracted, pest control report/certification must be delivered; two-part report (actual damage vs. potential future damage); lender may require remediation before closing; the responsible broker retains records for 3 ext{ years}.

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• Market Conditions Advisory (MCA): discusses that market conditions are cyclical; buyers should understand offer/price considerations; warnings about non-contingent offers and associated risks (loan/appraisal contingencies).
• Financing disclosures: lenders/settlement services disclosures help buyers understand costs and relationships among service providers.

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• Notice Regarding the Advisability of Title Insurance: if no title insurance is issued, a separate notice must be provided and signed in escrow.
• Escrow needs to disclose the sales price within 1 ext{ month} of close of escrow (via Escrow Closing Statement).
• Financing disclosures explain loan terms, servicing, and relationships among providers; HUD requires a home inspection notice for FHA loans.

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• Subdivision Disclosures: Subdivided Lands Law protects buyers in subdivisions; a Public Report must be issued by the Real Estate Commissioner; preliminary public reports may be used to take reservations; final Public Report is required before sale of each lot.
• Public reports disclose important facts about the property, marketing, and financing; the report validates subdivider ability to complete improvements.

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• Violations and penalties under Subdivided Lands Law; ISLA (Interstate Land Sales Full Disclosure Act) requires disclosures for multi-state sales; ISLA applies to 25+ lots in one state being sold in another.
• Summary: agents must explain disclosures; failure to comply can lead to court action; written material (NHD, Environmental Hazards, Lead, Earthquake Safety) aids consumer education; optional Local Disclosure forms may be used.

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• UNIT 7 REVIEW (Matching & Definitions): review of key terms such as caveat emptor, transfer disclosure statements, stigmatized property, red flag, etc.

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• MULTIPLE CHOICE REVIEW: practice questions covering as-is disclosures, TDS requirements, visual inspection scope, and when TDS is required (sale of 1 ext{-}4 units).

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• MCQ continued: questions on lead disclosures, environmental hazards, and HOA disclosures for condominiums.

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• MCQ continued: AIDS/HIV disclosure rules, Subdivided Lands Law, ISLA applicability, pest-control reports, and carbon monoxide detector requirements.

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• ANSWER KEY (selected): confirms correct choices for the matching and MC questions; reinforces that:
  • Sellers must disclose known material facts; “as is” does not absolve disclosure obligations.
  • TDS must be provided in 1 ext{-}4 unit sales; delivery timing is enforceable.
  • Environmental hazards, NHD, and informational booklets are essential components of disclosure.
  • Lead-based paint disclosures apply to pre-1978 housing with specific rights and pamphlets.
  • Fire safety, water heater bracing, and CO/smoke detector requirements are mandatory retrofit/disclosure components.

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• End-of-chapter reminder: stay informed via BRE and CAR; disclosures are a continuing obligation; documentation should be retained (usually 3–5 years).