Selling Your Home? Be Mindful Of The Transfer Disclosure Statement

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If you are selling or leasing your home, your real estate agent will give you a Real Estate Transfer Disclosure Statement (“TDS”) to fill out.  It is required by law, and must be filled out accurately and truthfully, to the best of the seller’s or lessor’s knowledge.  The purpose of the TDS is to provide the prospective buyer or lessee with important information about the property they are considering purchasing or leasing.  The TDS applies to residential property, which is described as property “improved with or consisting of not less than one nor more than four dwelling units.” Civil Code §1102 (a). It applies to mobile homes and manufactured homes, as well as to typical residential structures. Civil Code §1102 (b).

The TDS has several sections.  Section I provides that the seller must give the buyer copies of any reports of inspections conducted of the property.

Section II contains certain representations the seller is making to the buyer concerning specific items in or affecting the property.  For instance, it requires the seller to state whether the property has the following appliances and amenities: a range, dishwasher, smoke detector, oven, trash compactor, satellite dish, and a host of other items one might find in, on or around a residential property.   The seller must also state whether any of these items are, “to the best of Seller’s knowledge,” not in operating condition.

Section II also requires the seller to state whether he is “aware” of any significant defects/malfunctions in any of a long list of items, including, but not limited to interior walls, exterior walls, windows, slabs, ceilings, doors and several other specified items. If the seller is aware of any such defects or malfunctions, he must provide an explanation of their nature and extent.

Section II of the TDS also requires the seller to state whether he is “aware” of certain additional items, such as any environmental hazards on the property, walls or fences abutting other properties, easements, unpermitted room additions, fill, CC & Rs, flood, drainage or grading problems, and a host of other things affecting the property.

A seller who fills out and signs a TDS is not guaranteeing the accuracy of every item the seller must disclose.  Instead, the TDS requires the seller to disclose only those specified things of which the seller is “aware.”  Consequently, as an example, if the property is built on fill, or the walls have lead-based paint, the seller has not violated the law by failing to disclose these facts, so long as he is not aware of them. 

When parties enter into an agreement, they may often waive rights the law provides them.  However, a buyer may not waive his right to receive the disclosures required by the transfer disclosure law, because any such waiver would violate public policy.

It is not uncommon for Purchase and Sale Agreements to include a provision that the property is sold “as is” and with no warranties.  However, such a provision will not protect a seller if he fails to disclose significant problems with the property of which he is aware, as courts throughout California have ruled. 

However, an “as is” provision is not unlawful and will protect the seller from non-disclosure of problems with the property of which he is unaware.  That is because the seller’s only obligation under the Transfer Disclosure Law is to disclose problems of which he is “aware.” 

What remedy does a buyer have in the event he purchases the property and later learns of one or more defects in items referred to on the TDS and which the seller failed to disclose?  If the defects are sufficiently significant, he may be able to rescind the purchase agreement, return the property to the seller and recover the purchase price he paid, and perhaps any “incidental” or “consequential” damages he has sustained. In the event the seller cannot rescind, or does not wish to rescind, he may be entitled to recover money “damages” from the seller.   The measure of damages is the difference between what the buyer paid for the property and the fair market value of the property. However, if the value of the property, even with the defects/malfunctions not disclosed to the buyer, is the same as or greater than the purchase price, the buyer will have no damages.

The Legislature has made it clear that the transfer disclosure law was  intended to add to the rights a buyer or lessee of residential property has, and not to change previously existing law. Thus, if the seller, for instance, makes intentional misrepresentations to the buyer concerning the property, including misrepresentations of things not covered by the TDS, and these misrepresentations are material, and not simply minor, the buyer may rescind the purchase contract, so long as he does so promptly upon learning he has been defrauded.  Alternatively, he may sue for damages, so long as the value of the property is less than the price the buyer paid for it.

The Law Office of William J. Tucker is familiar with these and other real property legal issues, and provides free initial phone consultations to employers and employees who have issues concerning employment matters.  Feel free to Schedule an Appointment.