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Defect, Inspection and Disclosure

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Transfer Disclosure Statement Has Been Amended

Effective July 1, 2014, the Transfer Disclosure Statement has been amended to require a seller to disclose if a seller is aware of certain construction defect claims under SB800.

The revised TDS inquires whether a seller is aware of any of the following claims threatening to or effecting the property:  1) claims for damages by the seller based on construction defects; 2) claims for breach of warranty; or 3) claims for breach of an enhanced protection agreement, including any lawsuits or claims for damages under Civil Code §910 or 914 alleging a defect or a deficiency in property or common areas.  These changes relate to claims arising out of SB800 including Civil Code §895-945.5.

SB800 was a Senate Bill that was previously passed by the legislature.  The legislation was supported by the building industry to minimize construction defect litigation.  While it is a quite detailed set of statutes, in general, it allows a builder to require a homeowner in new construction to notify the builder of any potential claims or construction defects prior to filing suit.  The builder then has an opportunity to correct those defects.  The builder may also require buyers to mediate and/or arbitrate.

The purpose of the change of the TDS is to require any homeowners who have claims against a builder under SB800 to disclose those claims to new buyers.  The California Association of Realtors has posted an updated version on Zip Forms.

Court Holds that Listing Agent has Fiduciary Obligation to the Buyer Where the Broker acted in a Dual Agency Capacity, But With Separate Agents

In Horiike v. Coldwell Banker Residential Brokerage Company, a California Appellate Court recently held that a listing agent could have fiduciary obligations to a buyer where a different agent from the same brokerage represented the buyer.  In Horiike, Chris Cortazzo was a salesperson with Coldwell Banker.  He listed a property for sale on the Multiple Listing Service (“MLS”).  The MLS provided him with public information indicating that the square footage of the property was less than that represented by Cortazzo on the MLS.  Cortazzo subsequently changed the MLS listing to state that the approximate square footage was “0/O.T.,” which he meant zero square footage and other comments.  Plaintiff engaged Coldwell Banker and a different agent from a different office to represent him in the purchase of a property.  He visited the property at issue.  The listing agent gave the buyer a copy of a flyer that listed the property with the original square footage noted in the MLS.  The buyer made an offer and escrow was opened.  A confirmation of agency relationships was signed.  Escrow subsequently closed.  The buyer subsequently sued the listing agent and Coldwell Banker for misrepresentations relating to the square footage.  That claim included a breach of fiduciary duty claim. 

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Risks Associated with the Sale of Investor Properties

A recent development in this market is the purchase and resale of properties by investors.  Investors, by the droves, are purchasing properties at foreclosure sales or pursuant to short sales, improving those properties and reselling them for a profit.  While this is a very positive development for the market in that these investors are maximizing profits, there are risks associated with these resales.

Investors, who sell properties, are required under the Civil Code to prepare a Transfer Disclosure Statement (“TDS”).  Unfortunately, many of the investors have little personal knowledge of the condition of the property.  Some investors have never seen the property and many have seen them only once or twice.  Most have never lived in the property and lack any knowledge about the condition.

When a seller completes a TDS, the questions start with, “Are you aware of…” 

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ALERT – New Disclosure Laws Relating to Commercial Leases

Effective July 1, 2013, owners of commercial real property must disclose in every lease whether the property has been inspected by a Certified Access Specialist, also known as a CASp.  If an inspection has taken place, it must also be disclosed whether the property has been determined to meet all applicable construction-related accessibility standards under the Americans with Disabilities Act and California’s similar law, Civil Code §55.53.  This new statute does not require an inspection, it merely requires a disclosure as to whether the property has been inspected.  This new law is designed to prevent violations of the Americans with Disabilities Act and to reduce litigation arising out of that statute.

Proposed New Disclosure Law

The California Legislature is currently considering SB652, which would amend Civil Code §1102.3b, and require additional disclosures by a seller.  The amendment would provide that a seller of any real estate who is required to prepare a Transfer Disclosure Statement must disclose all claims for damages made by the transferor pursuant to SB800 and the status of such claims.  SB800 is a statutory scheme set forth in Civil Code §895, et seq., which is directed to construction defects and lawsuits asserted against builders.

Disclosure of Pest Inspection Report

Question: I am a listing agent. The sellers obtained a pest inspection report approximately one year ago. The property is currently in escrow. The buyers obtained their own pest inspection report. Does the seller have to disclose the prior pest inspection report?

Answer: Yes. The pest inspection report is material and must be disclosed by the sellers even though the buyer obtained their own more recent pest inspection report.

Question: Is the sellers’ pest inspection report invalid, since it has expired?

Answer: The sellers’ prior pest inspection report still has to be disclosed. Pest inspection reports do not “expire.” The Pest Operator Control Board indicates that if a pest inspection is more than three months old, the property must be reinspected, but does not provide that inspection reports “expire.”

AVID Form

It is strongly recommended that you complete an Agent’s Visual Inspection Disclosure form on all one to four unit residential properties, whether you represent buyer or seller.  While this form is not legally required, all agents are required to conduct a diligent visual inspection of the reasonably accessible areas of the property and disclose the results of this inspection to the buyer.  The Agent’s Visual Inspection Disclosure form was designed specifically to assist the agent in meeting this obligation. It is not sufficient for an agent to sign off on the other agent’s disclosure without doing his own.  This form should be completed and delivered to the buyer at the outset of the transaction so the buyer has an opportunity to review this during buyer’s inspection contingency period.

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