Real Estate Disclosure Law
If you are considering selling your house, you need to be aware of the disclosure laws and any potential problems which might arise if insufficient or inadequate disclosures occur. We can assist you in preparing a Property Disclosure to minimize any claims after escrow closes. If you bought a house and you have discovered a problem that you think should have been disclosed, we will counsel you as to whether you have a valid claim and the best strategy that fits your situation.
Rule: A Seller Has a Duty to Disclose Structural Defects and Other Problems with the Property
If you have ever purchased or sold real estate in California, you know that duty of full disclosure, particularity as far as sellers are concerned, is a large part of the process. The Seller of property is required to complete a Transfer Disclosure Statement which asks detailed questions about all aspects of the property. This affects the listing agent who must also sign and state what is obvious and of note. Stating that the property is being sold “as is” will not relieve a Seller of the obligation, but usually places the Buyer on notice that something more could be or is wrong.
Most residential real estate agents use standard California Association of Realtor (“CAR”) purchase and sale agreements and disclosure forms,–– which, if properly completed, satisfy most of the seller’s disclosure obligations. We say “most” and not “all” because typically a form contract will anticipate most, but not all, of particular property conditions that should be disclosed. Basically, the form asks the seller to disclose any problems with the roof, pests, structure, basement, attic, heating, cooling and any “latent” material defects or problems that could adversely affect the value of the property, and neighborhood or area conditions. For example, California requires the seller to disclose the presence of lead based paint in homes built before 1978 and any asbestos and radon. Basically, anything which might effect a Buyer’s desire to purchase the property, or not purchase the property, needs to be disclosed.
The most important non-disclosure rule in California is that a Seller must disclose any condition that could “materially” affect the Buyer’s decision to buy the property or not. This is often viewed as a “subjective” standard. Even something as innocent as a cracked pane of glass in a window could indicate settlement problems with the foundation or lot. Doors that don’t close, windows that won’t open are all indicators of possible earth movement or settlement. Even prior damage which has been repaired — must be disclosed. The Buyer is entitled to know and decide to follow through and close escrow, or make a counter offer, or cancel escrow.
Some examples of Problems that require disclosure are:
Disclosure of Structural Defects: including leaky roofs, bad furnaces, or rusty or leaking plumbing, cracked (but patched) slabs under the carpet, rodent or pest infestation. Sellers must also disclose noncompliance of a building or home with applicable building permit laws (check with the building department where the property is located). If any remodeling or other major modifications were done without a permit, that fact should be disclosed to purchasers.
The best rule is “when in doubt, disclosure it! The potential consequence of non-disclosure is simply not worth the risk. Disclose it to your agent or take time to visit with experienced real estate attorneys at Baker& Baker. A Professional Corporation. The California Association of Realtors lists William Baker, Jr. as a qualified attorney for association referrals. The firm regularly litigates in defending cases where the Seller (or real estate agent) is accused of a “Failure to Disclose”. The firm frequently litigates those situations where the Seller failed to disclose and the Buyer seeks financial damages for the loss in value of the property or out of pocket expenses.
We represent buyers and sellers with integrity, commitment and aggressive advocacy in matters of real estate and non-disclosure litigation. Our goal is to achieve the best possible results in each and every case. To discuss any type of fraud-related concern with an attorney from our firm — call or contact us to make arrangements for a free initial consultation.
Considerations When Enforcing the Real Estate Contract
What if Buyer backs out?
In California, as a general rule there is a limited period of time, which may be modified by contract, in which a Buyer has the right to back out of the sale without consequences. When the Buyer backs out of the purchase contract without a valid legal excuse it is considered a breach of the contract and it will often give rise to one or more lawsuits; to obtain the deposit that the Buyer has placed in escrow, to recover commissions, to recover related costs incurred by the seller in reliance on the contract. It’s a binding contract with a window for cancellation called “The Contingency Period”. After that period has passed, the contingencies are to be removed (active or passive removal),then the Buyer must close escrow. Usually, the Buyer must remove that contingencies in writing (active) but some contracts allow the automatic removal (passive) after the passage of time without any affirmative act of the Buyer. This is called removing or waiving the contingencies.
What if Seller backs out?
Generally, only the Buyer has the limited option to back out of the purchase agreement. If the seller backs out of the sale after the buyer has satisfied all contingencies, this would normally constitute a breach of contract. The seller cannot back out of the sale of the property simply because he or she changes her mind or gets a better offer (remember 2004 and 2005? We saw a lot of Seller’s remorse!) In these situations, the buyer can enforce the purchase contract by first pursuing mediation and then binding arbitration (if the parties agreed to that in the contract) or a civil lawsuit for specific performance Because the amount of damages is often speculative or uncertain, many purchase contracts provide a liquidated damages clause – which contains a specific dollar amount for the seller’s maximum damages in the event of the buyer’s breach of the contract. In California it is generally 3% of the purchase price but is most often limited to the actual money deposited in escrow as Buyer’s earnest money.
In California, the duties regarding disclosure are both required in the Common Law and by statute and provide a key aspect of real property transactions.
William E. Baker, Jr., is an experienced litigation and real estate transaction attorney. Having held a real estate broker’s license and formerly the owner of a mortgage company, he understands the less common threads in a real estate transaction. In particular, he often represents large partnerships in the ownership of shopping centers and other commercial real estate enterprises and dealings with partners, creditors and tenants.
