Revisiting an Old Friend: Transfer Disclosures Required by Sellers Upon Sale or Transfer of California Residential Property

Disclosures Upon Transfer of Residential Property

California law requires certain disclosures by sellers when real property of one to four dwelling units is transferred by sale, exchange, installment land sale contract, ground lease coupled with improvements, lease with an option to purchase, or any other option to purchase. California Civil Code section 1102 provides disclosure rules for home sellers which are set forth in the Real Estate Transfer Disclosure Statement (C.A.R. Form TDS) (“TDS”).  

Real Estate Transfer Disclosure Statement (TDS)

The TDS 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 transfer of title. However, the C.A.R. Residential Purchase Agreement (C.A.R. Form RPA) requires that all disclosures, including the TDS, be provided within seven days after acceptance of the RPA.  In the case of a transfer by a real property sales contract (as defined in Civil Code Section 2985) by a lease coupled with an option to purchase, or by a ground lease coupled with improvements, the TDS is to be delivered before the execution of any of the foregoing.

Components of the TDS

Section II.A.  This section pertains to physical defects in the fixtures, appliances or feature of the property.  The seller will disclose what appliances, fixtures, equipment, systems and components are located on the property and whether said items are in operating condition.  The disclosure of any items in the section does not constitute a warranty to the buyer.  

Section II.B.  This section pertains to defects and/or malfunctions of structural components of the property.  The seller will disclose any significant defects/malfunctions in the property’s interior walls, ceilings, floors, exterior walls, insulation, roofs, windows, doors, foundation, slabs, driveways, sidewalks, walls/fences, electrical systems, plumbing/sewers/septics and other structural components.

Section II.C.  This section pertains to structural or property hazards, noncompliance with building codes and permits, and environmental hazards, among other things.  The seller will disclose awareness of the existence of environmental hazards, common features with adjoining landowners, encroachments and easements, structural modifications, fill, settling, slippage, sliding or other soil problems, flooding, drainage or grading problems, major damage from fire, earthquake or landslides, zoning violations, nonconforming uses, setback violations, neighborhood noise or other nuisances, CC&R’s and other deed restrictions, homeowners associations, common areas, notices of abatement or citations against the property and any lawsuits against the seller affecting the property.

Accurate disclosure is essential in filling out the TDS, so if you have any doubt about disclosing certain information, you should always consult with a real estate attorney.  Failure to disclose a known problem may result in legal action by the buyer and the seller will be responsible for the actual damage that results therefrom.

Termination Right

Should the seller’s delivery of the TDS or amended disclosure to the buyer occur after the RPA is executed, the buyer has three (3) days after delivery of the TDS in person, five (5) days after delivery by deposit in the mail, or five (5) days after delivery of an electronic record (where the parties have agreed to conduct the transaction by electronic means), to terminate the RPA, even if all contingencies have been previously removed.

Exemptions from Disclosure Requirements

The following transfers are exempt from these disclosure requirements under California Civil Code section 1102.2:

1. Sales or transfers that are required to be preceded by the furnishing to a prospective buyer of a copy of a subdivision public report pertaining to the sale of new homes as part of a subdivision project;

2. Sales or transfers pursuant to court order including, but not limited to, sales ordered by a probate court in the administration of an estate, sales pursuant to a writ of execution, sales by any foreclosure sale, transfers by a trustee in bankruptcy, sales by eminent domain, and sales resulting from a decree for specific performance;

3. Sales or transfers from one co-owner to one or more other co-owners;

4. Sales or transfers made to a spouse or to a person or persons in the lineal line of consanguinity;

5. Sales or transfers resulting from a judgment of dissolution of marriage, or of legal separation, or from a property settlement agreement incidental to such a judgment;

6. Sales or transfers to or from any governmental entity;

7. Sales or transfers of any portion or a property not constituting single-family residential property;

8. The sale, creation, or transfer of any lease of any duration with the exception of a lease with an option to purchase or a ground lease coupled with improvements.

Consequences of Failure to Provide the TDS

If the licensee responsible for delivering the TDS cannot obtain it, the licensee must advise the buyer in writing of the buyer’s right to receive the TDS.  In addition, California courts have held that if the seller does not provide a TDS, the buyer may cancel the RPA prior to the close of escrow.

Under California Civil Code section 1102.13 “any person who willfully or negligently violates or fails to perform any duty prescribed by any provision of this article shall be liable in the amount of actual damages suffered by a transferee.”  Therefore, any seller who fails to make a required disclosure is liable for the actual amount in monetary damages caused to the buyer.