39 terms

Chapter 7: Disclosures in Real Estate


Terms in this set (...)

caveat emptor
"Let the buyer beware" The buyer purchases at their own risk and must be sure to inspect property carefully-a somewhat outdated notion in the current market
duty of full disclosure
One of the most critical duties of a real estate agent that discloses all material facts regarding the property
Easton v. Strassburger
A case regarding a home built on a landfill that had not been disclosed to the listing broker by the seller, was sold, and then subsequently suffered major damage due to land slippage. The ruling set precedent for future cases that if there are red flags then the problem should be properly investigated and fixed. Broker should inspect property and disclose any facts that may affect the marketability
red flags
Something that would alert a reasonable, observant person to a problem
as is
Refers to observable conditions. Does not relieve the seller from responsibility to disclose, but relieves them of the duty to repair the defect.
Visual inspection
All listing brokers should conduct a diligent visual inspection of the property. Must disclose facts to the buyer that may affect marketability of property.
Real Estate Transfer Disclosure Statement (TDS)
Document that the seller provides to the buyer that lists a detailed statement regarding the known condition of the property. Obtained by broker at the time of listing and provided to buyer BEFORE an offer. If given after the buyer has the right to terminate the purchase agreement (in writing).
Environmental Hazard Disclosures
In TDS. Usually referring to the presence of hazardous substances, materials, or products including asbestos, formaldehyde, radon, lead-based paint, toxic mold, chemical storage tanks, contaminated water, etc.
Residential Environmental Hazards Booklet
A booklet meant to educate and inform consumers about environmental hazards provided by the seller or the seller's agent.
toxic mold
A fungus that reproduces by spores present at minimal level in most homes, but if reaches a high level can induce sickness.
Drug-lab illegal controlled substance
In TDS. Buyer must be informed if there is toxic contamination as the result of the production of toxic controlled substances with a receipt of notice from the Dept. of Toxic Substance Control. If seller does not disclose, they can be held liable for damages of up to $5000 for each infraction.
Local Option Real Estate Transfer Disclosure Statement (LORETDS)
If there is a local condition that may materially affect the property it is disclosed on this form. These could include local ordinances such as zoning and use.
Mello-Roos Disclosure
The Mello-Roos Community Facilities Act of 1982 allows the formation of community facilities districts, which are areas where special taxes are imposed on real property owners to fund designated public facilities and services. It is a type of lien imposed on the property to pay off municipal bonds issued to fund off-site improvements for the development. Paid for by developer until property is sold, at which point the new owner is responsible.
Lead-based paint
Residential Lead-Based Paint Hazard Reduction Act of 1992 requires that a lead-hazard information brochure and disclosure form must be provided to buyers or lessee prior to entering a contract. Pertains to target housing, or residential housing built prior to 1978.
seller/landlord obligations
-give buyers the Protect Your Family From Lead in Your Home pamphlet
-disclose all known lead-based paint
-include standard warning language in contract
-complete and sign statements verifying completion of requirements
-retain signed acknowledgement for 3 years
-give buyers a 10-day opportunity to check for lead
Real estate agent responsibilities
Ensure that:
-seller is aware of obligations
-seller discloses the proper info to buyers
-contracts include proper disclosures and signatures
-buyers are given the chance to conduct an inspection
Natural Hazard Disclosure Statement (NHD)
A statement required by the Natural Hazard Disclosure Law that informs buyer if the property lies in any of the following:
-Special flood hazard: Defined by FEMA
-Area of potential flooding: in event of dam failure
-Very high fire hazard severity zone: Defined by Cal dept of Forestry and Fire Protection (CDF)
-Designated wild land fire area
-Earthquake fault zone
-Seismic hazard zone
Special flood hazard
Area defined by flood hazard boundary map, which are developed by the Federal Emergency Management Agency (FEMA). Shows areas within a 100-year flood boundary. Federal law requires flood insurance for any property located within a special flood hazard area as a condition of financing.
Areas of potential flooding
Area defined by inundation map, that shows areas that will be subject to flooding as a result of a dam failure
Very High Fire Hazard Zone
Property is subject to special maintenance requirements to prevent fires.
State Fire Responsibility Area
Areas identified by the Dept. of Forestry and Fire Protection that indicates that the state has to maintain wild land area to prevent and extinguish fires.
Earthquake Fault Zones
An area delineated by state officials to have an active fault within it and has the potential for surface rupture. The Alquist-Priolo Earthquake Fault Zoning Act prevents construction of buildings for human occupancy on active fault zones.
Seismic Hazard Zones
Regulatory zones that the State has determined pose a potential for liquefaction or earthquake induced landslides. The Seismic Hazards Mapping Act addresses non-surface fault rupture earthquake hazards (liquefaction, natural spreading, and landslides).
Earthquake Safety Booklet
Must be given to buyer if property was built before 1960 or if it is a masonry building with wood-frame floors or roofs built before January 1, 1975.
Megan's Law
Notifies buyer of public access to list of nearby sex offenders.
Owner's responsibility to buyer of a common interest property
Must provide:
-governing documents of development
-age restriction notice, if applicable
-homeowners' association most recent financial statement
-any info on change of dues and fees
-written statement from association specifying amount of current regular and special assessments
-preliminary list of construction defects that may have damages against developer
-general description of defects that will be corrected, estimated cost, and status of completion
Stigmatized Property
A property that has been psychologically impacted by events which occurred in property, that did not necessarily impact the property physically. This includes murders, suicides, and criminal activity. Owner must disclose any deaths that happened within 3 years and have material circumstances. Reason does not have to be disclosed if it is from AIDS, unless asked.
Seller Instructions to Exclude Listing from MLS
When a seller does not want the property listed on MLS.
Market Conditions Advisory
Real estate markets fluctuate, so sale cannot be guaranteed. This indicates that the broker discussed this with seller.
Financial disclosures
Helps consumers become more aware of financing for loans and settlement services and costs associated with financing of property
Subdivided Lands Law
Protects buyers from fraud, misrepresentation, or deceit in marketing of subdivided lots, parcels units, and undivided interests in new subdivisions. Determined by Real Estate Commissioner that offering meets certain requirements. All info is disclosed on public report, which is given to buyer. Violation punishable by monetary damages of up to $10000 and/or imprisonment. A preliminary report is used when Commissioner is still reviewing details and allows for reservations for project, but does not accept money or contracts.
Interstate Land Sales Full Disclosure Act
Regulates land sales that are occurring in two or more states.
Pest Control Inspection
Not required, but if requested as condition of sale must be done. Indicates area where existing damage, infection, or infestation is present, and areas where there is impending damage, etc.
Braced water heaters, smoke detector, and carbon monoxide compliance
Seller must provide certification that water heater is braced, anchored, or strapped in place. Smoke detectors must be operable and approved by State Fire Marshal. Carbon Monoxide Detectors must be installed in all properties with a fossil burning heater, appliance, or fireplace, or has an attached garage.
Conservation Retrofits
All new construction requires certain energy and water conservation standards to be met. Federal law requires new home sellers to disclose type, thickness, and R-value (resistance to heat loss) of insulation. Home Energy Rating System booklet can be supplied to buyer if needed.
Foreign Investment in Real Property Tax Act (FIRPTA)
Buyer of real property must withhold and send the IRS 10% of the gross sales price if seller is foreign.
-buyer signs a Buyer's Affidavit of Residency, indicating that they are a resident and the sale of the property does not exceed $300K, and it will be used as a residence
-Seller must sign Seller's Affidavit of Non-foreign Status that they are not a foreigner
-seller gives buyer a qualifying statement from IRS saying that arrangements have been made for collection/dismissal of tax
California FIRPTA Disclosures
In California, if property is sold by a foreigner or non-resident of CA, the buyer must withhold 3.3% of the total sales price as state income tax and deliver the sum to the State Franchise Tax Board.
Required when:
-seller shows an out-of-state address, or sale proceeds are to be disbursed to the seller's financial intermediary
-seller price exceeds $100K
-seller does not certify that they are a CA resident, or that this the prop converted is their residence
-sale price is less than $100K
-home is seller's principle residence
-seller signs Seller's Affidavit of Nonforeign Status or buyer signs Buyer's Affidavit of Residency for CA
Notice of Supplemental Property Tax Bill
Informs purchaser that county assessors revalue real estate property at the time of change in ownership, so buyer may receive additional tax bills.
Notice Regarding the Advisability of Title Insurance
Notice to inform buyer on advisability of title insurance where there may be prior liens or encumbrances.