Understanding the CAR Residential Contracts Series Part 6

By: D. Keith Dunnagan,

BPE Law Group, PC

September 12, 2023

Thus far in this series on the CAR Forms, we have completed our review of the Residential Purchase Agreement (“RPA) by examining contingencies and how they work, then reviewing liquidated damages and cancelling a contract, followed by collecting the earnest deposit and specific performance when parties breach and finally reviewing the contractual language related to closing an escrow. This is the process of navigating the RPA from a high level.

Today we begin our review of ancillary documents that fit into the due diligence or investigative period of the transaction: THE DISCLOSURES. There are numerous disclosures that can be involved in any residential transaction. Some are contractually required (ie. the Seller Property Questionnaire or “SPQ”), some are statutorily required – that is required by law (ie. the Transfer Disclosure Statement “TDS” or the Natural Hazard Disclosure “NHD”), while some are obtained as a good practice (ie. buyer’s home inspection).

Paragraph 11 of the RPA sets forth the obligations of the seller to provide certain disclosures. Among those disclosures are the NHD, the TDS (which incidentally is required by Cal. Civil Code Section 1102 et seq), the SPQ (contractually required under paragraph 10(A)(4)), the Agent Visual Inspection Disclosure (the “AVID” contractually required pursuant to paragraph 10(A)(2)) and other disclosures including but not limited to the Federal Lead Paint Disclosure, Asbestos Disclosure, Mello-Roos Disclosure, Meghan’s Law Notice, and others.

Many of the disclosures can be found in booklets printed in masse or are contained in the third party disclosure booklet much like the Property ID Natural Hazard booklet. These are expedited mechanisms to provide the legally required uniform disclosures. However, the more important disclosures are the TDS and the SPQ. These are disclosures that the seller is required either contractually or by law to provide a buyer and it is these disclosures that if done incorrectly will form the basis of a future lawsuit for non-disclosure which is a fraud based action and incidentally because it is fraud based carries the added potential penalty of punitive damages.

The TDS is the first and most important disclosure as it is a statutory requirement. It is so important in the eyes of the law, that the legislature created through statutory implementation a form to follow in providing the disclosures. The purpose of the TDS is to identify for the buyer certain “significant defects/malfunctions” of structural components of the property, including but not limited to walls, roof, windows, foundation, etc. The TDS requires the seller to identify the know defects. Additionally, the disclosure requires the seller to answer 16 basic questions related to the property related to known defects of the property. The two places where sellers routinely end up in a non-disclosure lawsuit are on questions 4 and 5 which require the seller to disclose where any alterations have been completed without a permit and whether any alterations are not in compliance with building codes. Not getting a permit is a violation of the building code. Most people are not even aware of the extensive permitting system and what things need to be permitted. For example, in many jurisdictions, you are required to get a permit to install a ceiling fan, to replace an existing water hearing, or to replace a toilet or to alter or improve any electrical, plumbing or heating within the home. Many common projects that are routinely completed require a permit to be obtained. Answering this question incorrectly could expose the seller to a lawsuit.

It is important for the agent and the seller to carefully review and answer the questions accurately to the best of their ability and if necessary take reasonable steps to investigate the issue prior to answering. Ultimately, what often comes up is that the person making the disclosure did not think they were required to disclose. This is can be dangerous. As a result in counseling thousands of individuals regarding disclosures, the best way to approach the problem is “If you have to ask the question (Do I need to Disclose this issue?) – you should Disclose, Disclose, Disclose.”

In the next installment of this series we will begin to look at the more thorough disclosure in the SPQ and introduce the AVID. If you or someone you know is having an issue related to incorrect disclosure they need to seek the advice of competent counsel. The law related to non-disclosure is complicated and tricky to navigate and the attorneys at BPE Law Group have significant experience in advising and representing clients in these matters and would welcome the opportunity to assist you in your disclosure matter.

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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