Revival of Contingencies with Supplemental Disclosures

Revival of Contingencies with Supplemental Disclosures

By: D. Keith Dunnagan, Esq.

August 31, 2021

The scenario goes like this: Buyer and Seller enter into an RPA related to the purchase of a home. Seller gives Buyer a TDS, Buyer does their inspections and then subsequently waives contingencies. Low a behold a week before closing Seller drops a bombshell and in a supplemental disclosure Seller discloses some material defect with the property. The Buyer frantic at this point does not know what to do. Do their contingencies get revived? Can they cancel with this new information? Will the Buyer lose their deposit if they back out now?

Their mind races like crazy. It is unsettling for that Buyer, but the law deals with just this situation.

California has a well-defined legal scheme related to disclosures in residential real estate transactions. California Civil Code Section 2079 requires an agent to in a transaction to “conduct a reasonably competent and diligent visual inspection” of real property that is subject to the residential transaction. Section 2079.5 requires buyers to perform their own due diligence related to the condition of real property. Case law requires Seller’s to disclose material defects likely to affect price or desirability to a purchaser and Civil Code Section 1102 et seq, requires sellers to complete a transfer disclosure statement identifying material defects.

All of these statutes address the front-end disclosures that happen early in the transaction. Naturally that late disclosure creates uncertainty. However, California law specifically addresses the situation of a supplemental disclosure. Under California Civil Code Section 1102.3(c) when a supplemental or amendment to a disclosure is made buyer has three (3) days after personal delivery or five (5) days after electronic delivery to cancel the transaction. Functionally, what this statute does is revive the inspection contingency based upon the delivery of the supplemental disclosure.

The purpose of this statute is to allow a buyer to review disclosures without the penalty of losing their deposit when that disclosure is made late by the seller. Sometimes, the seller later learns of a defect, sometimes a seller wants to play games, either way, the buyer will not be punished for removing contingencies when that supplemental disclosure comes from the seller.

However, what the buyer and buyer’s agent must be aware of is the timing. The late disclosure does NOT revive the contingency timeframes in the contract to allow for further inspection. The fuse to respond is short. The buyer and buyer’s agent need to review quickly and discuss what, if any response is required. Once the short revived statutory contingency period is complete there is no requirement to receive an additional written waiver of contingencies as is generally required by paragraph 14(c) of the RPA. It expires by statute automatically. Remember, if a buyer is now wanting to cancel, that contingency for cancellation is related to the disclosure. Other waived contingencies are not revived. Meaning, if the contingency is revived because of a roof leak disclosure, that supplemental disclosure does not provide a basis to cancel because the appraisal came back low.

Getting back to the scenario above. The buyer is protected if a supplemental disclosure is delivered to the buyer. For a short period of time, the buyer is allowed to cancel based upon the new disclosure and their escrow deposit should not be at risk.

The attorneys at BPE law for more than two decades have been representing, buyers, sellers and real estate professionals related to their real estate needs. If you or your client have a real estate issue, get competent legal counsel to assist.

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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