What Must a Seller Disclose About Property Defects?
Jan. 18, 2023
Whether you are buying or selling a home in California, you will be subject to laws and regulations concerning the disclosure of defects on the property involved. No one wants to buy a home, move in, and discover that the seller failed to mention that the electrical or plumbing systems do not function properly. Likewise, a seller doesn’t want to market a property knowing it has defects that could result in a termination of the real estate contract, or worse, civil action to recover damages once the sale has already been completed.
California law requires sellers to complete a disclosure form, known as the Real Estate Transfer Disclosure Statement (TDS), that mandates the listing of any known defects. The form must be provided to prospective buyers "as soon as practicable before transfer of title," which leaves the timing of notification a bit vague.
“Known,” of course, is the operative word in a TDS. If roots are encroaching on the sewage system but not yet causing a problem, the seller likely won’t know of this situation, but nine months or so after a sale, the problem could become evident. Is the owner then liable or off the hook?
If you are in the market for a home in or around San Jose, California, or you are putting your property up for sale, disclosure issues can loom large. For help in understanding buyers’ rights and sellers’ obligations, contact the real estate attorney at Mosaic Law, P.C. Our firm proudly serves clients throughout South County, Santa Clara Valley, and the Santa Cruz Mountains.
Common Disclosures Required
In addition to the Real Estate Transfer Disclosure Statement (TDS), both state and federal laws require additional disclosures.
California requires a Natural Hazard Disclosure Statement (NHDS), which by a system of “yes/no/do not know” checkboxes, alerts the potential buyer that the property lies within a hazardous area. An NDHS is required for properties being sold in the following areas:
Special Flood Hazard Areas
Areas of Potential Flooding (dam failure inundation)
Very High Fire Hazard Severity Zones
Wildland Areas That May Contain Substantial Forest Fire Risks And Hazards
Earthquake Fault Zones
Seismic Hazard Zones
For homes built prior to 1978, the U.S. Environmental Protection Agency (EPA) requires sellers to disclose any known information concerning potential lead-based paint hazards. The sellers must provide the potential buyers with a lead hazard information pamphlet and allow them to conduct a lead inspection if they so desire.
The Transfer Disclosure Statement (TDS)
Like the Natural Hazard Disclosure Statement, the Real Estate Transfer Disclosure Statement relies largely on checkboxes. At the outset of the TDS, the seller is asked to provide any inspection reports, but is not a requirement to do so. Then, in Part A, the seller checks off the items, structural features and appliances that come with the property, ranging from a washer-dryer to a pool to rain gutters and more.
In Part B, the seller is asked to attest to being “aware of any significant defects/malfunctions.” The initial checkbox is “yes” or “no.” If “no” is checked, the rest of Part B can be ignored. If “yes” is checked, then the form lists potential areas of defects or malfunctions, including the foundation, the roof, the walls, the plumbing and electrical systems, and more.
Part C contains a series of 16 questions requiring a “yes” or “no” checkmark. The first question concerns environmental hazards and then the section continues with questions about zoning, permits obtained (or not), common areas if any, any pending lawsuits, and more.
There is a final section asking the agent or broker representing the seller if he or she has anything in the way of a disclosure about the condition of the property. After receipt of the TDS, the buyer has three days to cancel the deal, or five days if the TDS is mailed or delivered electronically.
The TDS described above is the statewide version. The Civil Code also gives cities and counties the option of requesting addition disclosures. There is also a disclosure required if the property is located within the jurisdiction of the San Francisco Bay Conservation and Development Commission.
Remedies for Concealed Defects
Generally, a savvy buyer will include a clause in their offer to conduct an inspection of the property, which is usually contracted out to a professional inspection company. The results of the inspection can then be used to place contingencies on the sale; for instance, fix the leaky roof or the deal is off.
However, let’s assume the inspection doesn’t reveal anything, but after moving in, the buyer discovers a defect. For instance, a fresh coat of paint may be concealing mold or other structural damage that the inspection didn’t reveal. After a few weeks or months, the underlying condition resurfaces. If the seller knew of this defect and deliberately withheld information about it, then the seller can be held liable.
The defect may be covered by the buyer’s home warranty, but even so, the buyer can demand compensation from the seller for any repair work if — and this is the big legal if — the buyer can prove the seller deliberately withheld information about the defect.
In the case of a fresh paint job being used to hide something, then it can be assumed the seller knew, but if the sewage system goes out after six months because roots from a neighbor’s tree finally reach it, then it might be hard to prove the seller knew this would happen.
By working with a real estate attorney, you as the buyer can send a demand notice to the seller if you discover a defect after moving in. If that fails, you can initiate a lawsuit, but keep in mind that you must prove the seller knew of the defect and chose to conceal it.
Depend on Experienced Representation
Even though an attorney is not required to complete real estate transactions in California, having one review your contract, as well as all disclosure statements and inspection reports, can be a wise decision. Reviewing the title search report is also important. If you discover defects after purchasing a home, you should consult with an attorney to pursue your best options for recovery.
Whatever your real estate concerns are, rely on our experienced and knowledgeable real estate attorneys at Mosaic Law, P.C. Contact our office in San Jose, California, today to schedule a free consultation.