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Many sellers agree their most tedious task is gathering forms and completing their disclosure packet. Seller disclosure questions are drafted by federal and state agencies and they can be repetitive and sometimes confusing.
When a California home is for sale, the law requires seller disclosures to disclose certain information to prospective buyers. The seller disclosures are designed to let buyers make informed decisions about purchasing a property. If the seller or the seller’s real estate agent fails to disclose the appropriate information, they could face fines and penalties for breaking the law.
In California, local and federal laws mandate most of the seller disclosures required in a real estate sale. Some laws specify the precise format of questioning, including font size and type.
In this section, we’ll discuss the key Federal and State Disclosures you need to complete when selling a home in California.
I. Federal Documents for all Properties
a.) Disclosure Regarding Lead-Based Paint Hazards (built prior to 1978)
Federal Lead-Based Paint
The “Seller’s Disclosure of Lead-Based Paint and Lead-Based Paint Hazards” form is required by Federal law for a residential dwelling constructed prior to 1978. A buyer of a home built prior to 1978 is notified that such property may present exposure to lead from lead-based paint that may place young children at risk of lead poisoning.
This federal law requires the sellers of residential real estate to complete a “Lead Warning Statement” to provide the potential buyer with any information on lead-based paint hazards from risk assessments or inspections in the seller’s possession and notify the buyer of any known lead-based paint hazards. If your home was constructed in 1978 or later, this disclosure is not required.
II. General Documents for all California Properties
a.) Disclosures Upon Transfer of Residential Property
- Termination Right
- Real Estate Transfer Disclosure Statement
- Local Option Real Estate Transfer Disclosure Statement
- Natural Hazards Disclosure
- Mello-Roos Bonds and Taxes
- Property Taxes
- Ordnance Locations
- Window Security Bars
- Industrial Uses
- Methamphetamine Contamination
b.) Earthquake Guides
c.) Smoke Detector Statement of Compliance
d.) California’s Environmental Hazards Pamphlet
e.) Delivery of Structural Pest Control Inspection and Certification Reports
f.) Energy Conservation Retrofit and Thermal Insulation Disclosures
g.) Foreign Investment in Real Property Tax Act
h.) Notice and Disclosure to Buyer of State Withholding on Disposition of California Real Property
i.) Furnishing Controlling Documents and Financial Statements Concerning Common Interest Developments (CID’s)
j.) Notice Regarding the Advisability of Title Insurance
k.) Certification Regarding Water Heater’s Security Against Earthquake
l.) Database – Locations of Registered Sex Offenders
Did you know Houzeo’s Gold Plan provides relevant Federal and State Disclosures?
When any disclosure or significant change to any disclosure is made after the purchase agreement is executed, the buyer will have the following periods of time to terminate their offer
- within three days when the dilatory disclosure was provided in person; or
- within five days when the dilatory disclosure was provided by mail or when the buyer and seller have agreed to conduct the transaction by electronic means
Real Estate Transfer Disclosure Statement (RETDS)
This describes the condition of a property and, in the case of a sale, must be given to a prospective buyer as soon as practicable and before the transfer of title. This is the most complex disclosure of California. First, this form must be completed in the seller’s handwriting. An agent cannot complete this form for a seller under any circumstance. This document is often used as evidence for the seller when it comes to selling a house in California. The disclosure questions are drafted by federal and state agencies to make sure the seller has disclosed each and every minute details.
For simplicity, Real Estate Transfer Disclosure is broken down into 5 sections.
- Coordination with Other Disclosure Forms
- Seller’s Information
- Agent’s Inspection Disclosure – For Seller
- Agent’s Inspection Disclosure – For Agent
- Additional Professional Advice and/or Inspections
For a thorough discussion of RETDS, also read:
What is California Real Estate Transfer Disclosure Statement?
Local Option Real Estate Transfer Disclosure Statement
Depending on the city or county, the seller may be required to provide specific information about the neighborhood or community. The seller discloses that even though this is not a warranty, prospective buyers may rely on the provided information in deciding whether and on what terms to purchase the subject property. Seller hereby authorizes any agent(s) representing any principal(s) in this transaction to provide a copy of this statement to any person or entity in connection with any actual or anticipated sale of the property.
Natural Hazards Disclosure
Unless the transfer of the property is subject to an exemption from this disclosure, California law requires disclosure when properties for sale lie within any of these six state or local hazardous areas:
- A Special Flood Hazard Area
- An Area of Potential Flooding (dam failure inundation)
- A Very High Fire Hazard Severity Zone
- A Wildland Area That May Contain Substantial Forest Fire Risks and Hazards
- An Earthquake Fault Zone
- A Seismic Hazard Zone
The seller must disclose any information mentioned above by providing a Natural Hazard Disclosure Statement to the buyer.
Notice of Supplemental Property Tax and Mello-Roos Disclosure Notice
The Mello-Roos Community Facilities Act of 1982 authorizes the formation of community facilities districts, the issuance of bonds, and the levying of special taxes to finance designated public facilities and services. The seller of a property consisting of 1 to 4 dwelling units subject to the lien of a Mello-Roos community facilities district or subject to a fixed lien assessment collected in installments to secure bonds issued pursuant to the Improvement Bond Act of 1915 (Division 10, commencing with Section 8500, of the Streets and Highway Code) must make a good faith effort to obtain from the district a disclosure notice concerning the special tax and must give the notice to a prospective buyer. If a district notice is not obtained, a notice obtained from a non-governmental source may be used provided that it clearly and accurately describes the related tax liabilities.
In accordance with section 1102.15 of the California Civil Code, the seller of a residential property of 1 to 4 dwelling units who has actual knowledge of any former federal or state Ordnance locations once used for military training purposes within 1 mile of the residential property shall give written notice to the buyer as soon as practicable before transfer of title.
If the seller has actual knowledge of former federal or state Ordnance locations as defined above, he shall deliver the Military Ordnance Disclosure to the buyer.
The disclosure required by this section of the California Civil Code does not limit or abridge any obligation for disclosure created by any other law in order to avoid fraud, misrepresentation, or deceit in the transfer transaction.
Window Security Bars
A seller must disclose on the Real Estate Transfer Disclosure Statement (TDS) or if mandated in the Local Option TDS, the existence of window security bars and any safety release mechanism on the bars.
A seller who has actual knowledge must disclose on the Real Estate Transfer Disclosure Statement (TDS) or if mandated in the local option TDS, should the property be adjacent to or zoned to allow an industrial use described in Section 731A of the Code of Civil Procedure, or affected by a nuisance created by such use.
New legislation effective January 1, 2006, requires local health officers to assess a property after receiving notification from a law enforcement agency of potential contamination or of known or suspected contamination by a methamphetamine laboratory activity. If the property is determined to be contaminated, an order prohibiting its use or habitation shall be issued. Until the property owner receives a notice from a local health officer that the property identified in order requires no further action, the property owner shall notify the prospective buyer in writing of the order and provide the prospective buyer with a copy of the order. The prospective buyer shall acknowledge, in writing, the receipt of a copy of the order.
If the residential dwelling was built prior to 1960, the seller must deliver to the buyer a copy of the Homeowner’s Guide to Earthquake Safety published pursuant to Section 10149 Bus. & Prof. of the Business and Professions Code and complete the Earthquake Hazards Disclosure contained therein.
Smoke Detector Statement of Compliance
California law requires that every single-family dwelling and factory-built housing unit sold on or after January 1, 1986, have an operating smoke detector, approved and listed by the State Fire Marshal and installed in compliance with the State Fire Marshal’s regulations. This Statement of Compliance, required by law, is the seller’s confirmation to buyers that smoke detector(s) in the dwelling are operating and installed in compliance with the law. When selling residential real estate, the Smoke Detector Statement of Compliance must be delivered to the Buyer prior to the sale.
California’s Environmental Hazards Pamphlet
The seller may give the buyer of real property a pamphlet entitled, “Environmental Hazards: A Guide for Homeowners, Buyers, Landlords, and Tenants” subject to Section 1102 of the Civil Code or of any other real property, including manufactured housing as defined in Section 18007 of the Health and Safety Code. If the buyer receives the pamphlet, the seller is not required to furnish more information concerning such hazards, unless the seller has actual knowledge of the existence of an environmental hazard on or affecting the property.
Delivery of Structural Pest Control Inspection and Certification Reports
The law does not require that a structural pest control inspection be performed prior to the transfer of a real estate property. However, if required by the purchase contract or by the lender, the seller must deliver to the buyer a copy of the report and written certification.
California law requires that the report include any wood-destroying insects such as termites, wood-boring beetles or fungus. It should also note the resulting structural damage visible and accessible on the date of inspection. Also identified in the report are conditions likely to lead to future wood-destroying pest infestations such as excessive moisture, earth to wood contact, and faulty grade levels.
Energy Conservation Retrofit and Thermal Insulation Disclosures
State law prescribes minimum energy conservation standards for all new construction. Some local governments also have ordinances that impose additional energy conservation measures on new and/or existing homes. These local ordinances may impose energy retrofitting as a condition of the sale of an existing home. The seller is required to disclose to a prospective buyer the requirements of the various ordinances, as well as who is responsible for compliance.
Foreign Investment in Real Property Tax Act
Federal law requires that a buyer of real property must withhold and send to the Internal Revenue Service (IRS) l0% of the gross sales price if the seller of the real property is a “foreign person.”
The primary grounds for exemption from this requirement are:
- seller’s non-foreign affidavit and U.S. taxpayer I.D. number
- a qualifying statement obtained through the IRS attesting to other arrangements resulting in a collection of or exemption of the tax
- the sales price does not exceed $300,000 and the buyer intends to reside in the property
Notice and Disclosure to Buyer of State Withholding on Disposition of California Real Property
In certain California real estate sale transactions, buyers must withhold 3 1/3% of the total sales prices as state income tax and deliver the sums withheld to the State Franchise Tax Board. In relevant transactions, the escrow holder is required by law to notify the buyer of this responsibility.
A buyer’s failure to withhold and deliver the required sum may result in the buyer being subject to penalties. If the escrow holder fails to notify the buyer, penalties may be levied against the escrow holder.
Furnishing Controlling Documents and Financial Statements Concerning Common Interest Developments (CID’s)
The owner (other than a subdivider) of a separate interest in a common interest development (community apartment project, condominium project, planned development, or stock cooperative) must provide a prospective buyer with the following:
- A copy of the governing documents of the development, including any operating rules and a copy of the association’s articles of incorporation, -23- or if not incorporated, a written statement from an authorized representative that the association is not incorporated
- If there is an age restriction not consistent with Civil Code Section 51.3, a statement that the age restriction is only enforceable to the extent permitted by law and specifying the applicable provisions of law
- A copy of the financial documents of the association including financial statement, the operating budget, the most recent reserve study, and the assessment and reserve funding disclosure summary form (see Civil Code 1365 and 1365.5)
- A written statement from an authorized representative of the association specifying the amount of the current regular and special assessments, the current fees, as well as any unpaid assessments, late charges, interest, and costs of collection which are or may become a lien against the separate interest and any fines or penalties levied upon the owner and which remain unpaid
- A copy or summary of any notice previously sent to the owner that sets forth any alleged violation of the governing documents that remains unresolved
- A copy of any preliminary list of any construction defects and a statement that a final determination of the defects has yet to occur, including whether the list of defects is accurate and complete
- A disclosure of any settlement agreement or other instruments between the association and the developer regarding construction defects, and the following information in connection therewith:
- A general description of the defects that the association reasonably believes, as of the date of the disclosure, will be corrected or replaced.
- A good faith estimate, as of the date of the disclosure, of when the association believes that the defects identified in (1) will be corrected or replaced. The association may state that the estimate may be modified.
- The status of the claims for defects in the design or construction of the common interest development that were not identified in paragraph (1) whether expressed in a preliminary list of defects sent to each member of the association or otherwise claimed and disclosed to the members of the association.
- Information regarding any approved change in the assessments or fees which are not yet due and payable as of the disclosure date.
NOTE: Upon written request, the association is to provide within 10 days the above information to or as directed by the owner. In addition, some transactional documents require that the owner secure for the prospective buyer copies of minutes of proceedings, which may be obtained from the association by the owner in accordance with Civil Code Section 1365.2.
Notice Regarding the Advisability of Title Insurance
In an escrow for a sale (or exchange) of real property where no title insurance is to be issued, the buyer (or both parties to an exchange) must receive and sign/acknowledge the following notice as a separate document in the escrow:
“IMPORTANT: IN A PURCHASE OR EXCHANGE OF REAL PROPERTY, IT MAY BE ADVISABLE TO OBTAIN TITLE INSURANCE IN CONNECTION WITH THE CLOSE OF ESCROW SINCE THERE MAY BE PRIOR RECORDED LIENS AND ENCUMBRANCES WHICH AFFECT YOUR INTEREST IN THE PROPERTY BEING ACQUIRED. A NEW POLICY OF TITLE INSURANCE SHOULD BE OBTAINED IN ORDER TO ENSURE YOUR INTEREST IN THE PROPERTY THAT YOU ARE ACQUIRING.”
Certification Regarding Water Heat
The seller of any real property containing a water heater must certify in writing to a prospective buyer that the water heater has been braced, anchored or strapped to resist falling or horizontal movement due to earthquake motion. The minimum standard for this security is set forth in the California Plumbing Code, which may be more restrictively amended by local or municipal code or ordinance. The certification can be included with the Homeowner’s Guide to Earthquake Safety, in the Real Estate Purchase Contract or Receipt for Deposit, or with the Real Estate Transfer Disclosure Statement.
Database – Locations of Registered Sex Offenders
Also known as Megan’s Law. It mandates the California Department of Justice (CA DOJ) to notify the public about specified registered sex offenders. It also authorizes local law enforcement agencies to notify the public about sex offender registrants found to be posing a risk to public safety. This lets the buyers know that there is a website out there where they can check the proximity of sexual predators in the area. Information about specified registered sex offenders is made available to the public via an internet website maintained by the Department of Justice at www.meganslaw.ca.gov.
Although some California sellers think that providing complete disclosures is a lot of work, if you don’t provide a prospective buyer with the disclosure statement at all, the buyer has a right to cancel the sale agreement up to the last moment of negotiations. That would mean that your entire home sale, as well as all of the work you have put into it, could fall through. Besides, buyers tend to be happier with the deal when they’ve been warned of possible issues upfront, rather than being surprised by them later.
Did you know Houzeo’s Gold Plan includes Federal and State seller disclosures?
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