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In Part 1 of this series on non-disclosure laws, we looked at an overview of such cases. Today, we examine a law aimed at flipping houses that went into effect July 1, 2024, AB 968 generally referred to as the “flipper disclosure”. This requirement is and will continue to be a major player in the purchase and sale of homes in California and non-disclosure disputes as the flipping business is still booming.

The changes to the law are aimed at flipping properties, i.e. buying a home, making repairs or upgrades, and then reselling it usually in a short period of time. Flipping properties has become an increasingly lucrative business in California and across the country. However, while some flippers do an excellent job turning dated or run down properties into homes many others do nothing more than slap lipstick on a pig in the hope of making a quick buck. As such, the state government has enacted AB 968 in an attempt to crack down on the negative side of flipping

Now turning to specific changes brought about by AB 968, this new law requires additional disclosures for anyone who has purchased and sold a home within 18 months. While this law is aimed at flippers, it would also be applicable for sellers who, due to a change in circumstances, are selling their home in a short period of time. These disclosures include but are not limited to (1) any room additions, structural modifications, other alterations, or repairs made to the property after the seller purchased it, (2) provide or make available to the buyer all permits pulled related to any repairs performed on the property, and (3) the names and contact information of all contractors performing any work, including labor and materials over $500.

Now that we all have at least the groundwork of the changes to the law, what are the practical implications we are most likely to see? In short, the answer is probably more litigation as the flipper disclosure is a plaintiff’s attorney’s dream. First, under the business and professions code, all work that exceeds $1000 must be performed by a licensed contractor. As such, the disclosure of the names and contact information of those persons performing work on the flipped home assumes they are licensed contractors...you can see problems arising when flippers, who have an economic incentive to flip properties cheaply, may not actually use license contractors. This may also implicate Business and Professions code section 7031 which punishes those who utilize unlicensed contractors for larger projects.

Second, forcing flippers to provide contact information almost guarantees a buyer who wishes to bring a non-disclosure action, potentially even outside the flipper disclosure context, has ready access to not only witnesses but other information they would only have access to through formal discovery even prior to the contractually required mediation. As such, Plaintiffs may be in a much stronger position compared the seller who flipped the property even at the onset of a dispute.

Third, for those who are flippers, AB 968 will likely affect your bottom line. Specifically, flippers are now forced to track and report work done on properties as well as use licensed contractors. This will likely increase the cost of each project working under the assumption that a licensed contractor will charge more than a handyman. To some degree this cost may be passed on to the buyer via a high list price but likely we will see at least some shrinking of the profit margins associated with flipping.

Last, will the disclosures provide buyers with increased legal claims and/or potential agency claims. As identified above not only does the flipper have to disclose the work completed at the house, they also have to provide the permits. On the TDS, one of the questions asks if work was completed on the house without the appropriate permits. If the flipper identifies work performed and states that permits were pulled and does not provide the permits, what kind of liability will arise. From a plaintiff’s standpoint, it just got easier to prove the non-disclosure component. Potentially more problematic is that in California most work that is completed without permits may be criminally punished as a misdemeanor. Proving work done without a permit used to be a bit of a chore, but with the seller now required to disclose the work they did and identify the lack of permits, did the burden of proof just get ridiculously easy?

Overall, AB 968 will likely play an increasingly large role in not only the California housing market but also non-disclosure litigation in the years to come. Regardless of what role you play gentle reader, make sure you know your rights and obligations when entering into a transaction.

In the next Part we will jump into the most common causes of action alleged in a non-disclosure.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.

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