chapter 7 Disclosures in Real Estate

Question 1

Transfers Exempt from the Disclosure Requirement

Answer 1

• Transfers pursuant to a court order
• Transfers by a foreclosure sale
• Transfers court-ordered by a fiduciary in the administration of a probate estate or a testamentary trust
• Transfers to a spouse or another related person resulting from a judgment of dissolution of marriage or of legal separation or from a property settlement agreement incidental to such a judgment
• Transfers from one co-owner to another
• Transfers by the state controller for unclaimed property
• Transfers resulting from the failure to pay taxes
• Transfers from or to any governmental entity
• Transfers of the first sale of a residential property within a subdivision and a copy of a public report is delivered to the purchaser or if such a report is not required

Question 2

Caveat emptor

Answer 2

Latin phrase meaning, let the buyer beware, is becoming a thing of the past

Question 3

Easton v. Strassburger

Answer 3

The court ruled that a broker has the duty to inspect a property and disclose any material facts affecting its value. A broker is required to uncover any reasonably discoverable problems and tell all interested parties.
they must disclose to a prospective buyer all material facts that may affect value, desirability, and intended use of the property.

Question 4

Material Facts Affecting Desirability and Value of a Property

Answer 4

• Age, condition, and any defects or malfunctions of the structural components and/or plumbing, electrical, heating, or other mechanical systems
• Easements, common driveways, or fences
• Room additions, structural alterations, repairs, replacements, or other changes, especially those made without required building permits
• Flooding, drainage, or soil problems on, near, or in any way affecting the property
• Zoning violations, such as nonconforming uses or insufficient setbacks
• Homeowners’ association obligations and deed restrictions or common area problems
• Citations against the property, or lawsuits against the owner or affecting the property
• Location of the property within a known earthquake zone
• Major damage to the property from fire, earthquake, or landslide

Question 5

Real Estate Transfer Disclosure Statement

Answer 5

is a document that the seller must provide to any buyer of residential property (one-to-four units). It is a detailed statement telling what the seller knows about the condition of the property

Question 6

Easton v. Strassburger

Answer 6

case findings stated real estate agents could be liable for defects in property that they know about as well as defects that they should know about as a result of a visual investigation.

Question 7

Hazards Discussed in the Residential Environmental Hazards Booklet

Answer 7

• Asbestos: A mineral fiber used in construction materials, which has been found to cause lung and stomach cancer.
• Radon: A colorless gas known to cause cancer. Radon can be detected with a spectrometer.
• Lead: A mineral that causes major health problems.
• Formaldehyde: A chemical organic compound found in building materials, which may be a carcinogen.
• Hazardous waste: Materials—chemicals, explosives, radioactive, biological—whose disposal is regulated by the Environmental Protection Agency (EPA).
• Household hazardous waste: Consumer products such as paints, cleaners, stains, varnishes, car batteries, motor oil, and pesticides that contain hazardous components.

Question 8

Window Security Bars

Answer 8

the windows, and, if present, any safety release mechanism on the bars

Question 9

Drug-Lab Illegal Controlled Substance

Answer 9

The seller must inform the buyer in writing of toxic contamination by an illegal controlled substance

Question 10

Industrial Use Disclosure

Answer 10

The seller must disclose actual knowledge that the property is affected by or zoned for industrial use of the property. Examples of industrial use disclosure are manufacturing, commercial, or airport use. This information may be disclosed on the TDS form or the SSD form.

Question 11

Military Ordnance Location

Answer 11

Federal and state agencies have identified certain areas once used for military training and which may contain live ammunition as part of the ordnance—or military supplies—from past activity. A seller of residential property (one-to-four dwelling units) located within one mile of such a hazard must give the buyer written notice as soon as possible before transfer of title. This obligation depends upon the seller having actual knowledge of the hazard. The location of military ordnance may be disclosed on the TDS form or SSD form.

Question 12

Local Option Real Estate Transfer Disclosure Statement

Answer 12

If there is some local condition, which may materially affect a buyer’s use and enjoyment of residential property

Question 13

Mello-Roos District

Answer 13

is an area where a special assessment is imposed on those real property owners within a Community Facilities District. Public services such as roads, sewers, parks, schools, and fire stations in new developments may be financed under this law.

A Mello-Roos lien is placed on each parcel in a new development by the developer to pay off municipal bonds issued to fund off-site improvements for the development. The developer must make the payments on the bond until the homes are sold, and then the new owners are responsible. Mello-Roos liens are a way a developer can make improvements and have each homeowner pay for them, without charging the improvements to property taxes.

Question 14

Lead-Based Paint Hazards

Answer 14

(Protect Your Family from Lead in Your Home) and disclosure form (C.A.R. form FLD) must be provided to a buyer or lessee by a seller or landlord prior to entering into a contract. Also, the presence of any known lead-based paint must be disclosed.

Question 15

target housing

Answer 15

This disclosure pertains to residential housing built before 1978

Question 16

Seller/Landlord Obligations

Answer 16

• give buyers/tenants Protect Your Family From Lead in Your Home pamphlet.
• disclose all known lead-based paint and lead-based paint hazards in the dwelling and provide buyers/tenants with any available reports.
• include standard warning language as an attachment to the contract or lease.
• complete and sign statements verifying completion of requirements.
• retain the signed acknowledgment for three years.
• give buyers a 10-day opportunity to test for lead (for sale transactions only).

Question 17

Natural Hazard Disclosure

Answer 17

1. Special flood hazard (Zone A or Zone V) area designated by the Federal Emergency Management Agency (FEMA).
2. Area of potential flooding in the event of a dam failure, designated by the California Office of Emergency Services.
3. Very high fire hazard severity zone designated by the California Department of Forestry and Fire Protection (CDF).
4. Designated wild land fire area that may contain substantial forest fire risks and hazards, designated by the State Board of Forestry.
5. Earthquake fault zone designated by the State Geologist.
6. Seismic hazard zone designated by the State Geologist.

Question 18

Federal Emergency Management Agency (FEMA)

Answer 18

conjunction with communities participating in the National Flood Insurance Program (NFIP), show areas within a 100-year flood boundary, termed special flood zone areas

Question 19

inundation map

Answer 19

are areas that may flood as the result of a dam failure. If the property is on a list of properties posted at the County Public Works/Engineering Offices, Assessors Office, Water Agencies, or Planning Agency, the seller or listing broker must disclose this information to a prospective buyer

Question 20

Megan’s Law (Data Base Disclosure)

Answer 20

Every lease and sales contract is required to include a statutorily defined notice regarding the existence of public access to data base information regarding sex offenders in the neighborhood.

Question 21

stigmatized property

Answer 21

as defined by NAR, is “a property that has been psychologically impacted by an event which occurred, or was suspected to have occurred, on the property, such event being one that has no physical impact of any kind”. The most common properties associated with stigmatized property are those in which there have been murders, suicides, or criminal activity

Question 22

If a death occurred with in how many years?

Answer 22

Neither the transferor (seller/lessor) nor the agent has to disclose the fact of any death that occurred on the property to the transferee if the death was more than 3 years before the transferee (buyer/lessee) made an offer to buy or lease the property.

Question 23

Market Conditions Advisory

Answer 23

Real estate market conditions are fluid; therefore, no one can guarantee that prices will continue to move in a particular direction. The Market Conditions Advisory form is used to document that a broker discussed market conditions with a buyer. In addition, it also advises about the risks of making non-contingent offers or removing contingencies.

Question 24

Subdivided Lands Law

Answer 24

designed to protect buyers from fraud, misrepresentation, or deceit in the marketing of subdivided lots, parcels, units, and undivided interests in new subdivisions

Question 25

public report

Answer 25

is a document disclosing all important facts about the property, its marketing and the financing of the

Question 26

subdivision Violations - Penalties

Answer 26

Anyone who is found guilty of violating the Subdivided Lands Law is punishable by a maximum fine of $10,000; imprisonment for up to one year in the county jail or state prison; or by both fine and imprisonment. The district attorney of each county is responsible for prosecuting violators. In addition to possible fine and imprisonment, the Real Estate Commissioner may impose disciplinary actions for violations of the Subdivided Lands Law.

Question 27

preliminary public report

Answer 27

which allows taking reservations for the project, but not accepting any non-refundable money or entering into any binding contracts until receiving the final report from the Commissioner. Preliminary public reports have a one-year term and may be renewed.

Question 28

Interstate Land Sales Full Disclosure Act

Answer 28

This federal law regulates land sales when there are two or more states involved. Subdividers must conform to this law if they have 25 or more lots in one state and want to sell them in another state. A public report from the U.S. Department of Housing and Urban Development (HUD) must be given to each prospective buyer as a protection from less-than-truthful advertising in far-away places.

Question 29

Pest Control Inspection and Certification Reports

Answer 29

it must be done as soon as possible. Before transfer of title or before executing a real property sales contract, the selling agent must deliver to the buyer a copy of the report

Question 30

braced water heaters

Answer 30

The seller must provide certification of having the water heater(s) braced, anchored, or strapped in place in accordance with those requirements by signing and dating this form. The buyer must acknowledge receipt of the form with his or her signature and date.

Question 31

smoke detectors

Answer 31

The seller must have a certification of having operable smoke detector(s) approved and listed by the State Fire Marshal installed in accordance with the State Fire Marshal’s regulations and in accordance with applicable local ordinance(s) by signing and dating this form. The buyer must acknowledge receipt of the form with his or her signature and date

Question 32

Carbon Monoxide Poisoning Prevention Act

Answer 32

of 2010 requires that carbon monoxide detectors (CO detectors) must be installed in all dwelling units that contain a fossil fuel burning heater, appliance, or fireplace; or that have an attached garage

Question 33

Water-Conserving Fixtures Disclosure

Answer 33

A law passed in 2010 (SB 407) requires residential and commercial properties built prior to January 1, 1994 to be retrofitted with water-conserving plumbing fixtures. Beginning in 2014, any remodeling or building alterations will require the replacement of noncompliant plumbing fixtures. Effective 2017, sellers of single-family residences (2019 for sellers of multi-family residences) will need to disclose whether the plumbing fixtures in their residences are water-conserving plumbing fixtures or noncompliant fixtures.

Question 34

Foreign Investment in Real Property Tax Act

Answer 34

(FIRPTA). In both cases, the buyer is responsible for making sure either the proper disclosures have been made and/or the proper funds have been set aside. Generally, the broker and escrow agent make sure this is done. All documents must be kept by the broker and the buyer for five years.

Question 35

Federal FIRPTA Disclosure

Answer 35

Federal law requires that a buyer of real property must withhold and send to the Internal Revenue Service (IRS) 10% of the gross sales price if the seller of the real property is a foreign person.

Question 36

California FIRPTA Disclosure

Answer 36

California law requires that if property is sold by a non-citizen of the United States or a resident of another state, the buyer must withhold 3 1/3% of the total sales price as state income tax and deliver the sum withheld to the State Franchise Tax Board. The escrow holder, in applicable transactions, 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 penalties. Should the escrow holder fail to notify the buyer, penalties might be levied against the escrow holder.

Question 37

California FIRPTA Disclosure

Answer 37

• Seller shows an out-of-state address, or sale proceeds are to be disbursed to the seller’s financial intermediary.
• Sales price exceeds $100,000.
• Seller does not certify that he or she is a California resident, or that the property being conveyed is his or her personal residence.

Question 38

Notice of Supplemental Property Tax Bill

Answer 38

A seller or his or her agent must give prospective purchasers a Notice of Supplemental Property Tax Bill (C.A.R. Form SPT). The notice informs purchasers that county assessors revalue real property at the time the ownership of the property changes. Therefore, the buyer may receive one or two supplemental tax bills, depending on when escrow closes.

Question 39

Home Inspection Notice

Answer 39

The U.S. Department of Housing (HUD) requires lenders to provide a document entitled “For Your Protection: Get a Home Inspection” to prospective borrowers who apply for a FHA loan for any residential property of one-to-four units.

Question 40

Disclosure of Sales Price Information

Answer 40

broker must inform both buyer and seller, in writing, the sale price on a property within one month of close of escrow. The Escrow Closing Statement meets this requirement.

Question 41

Commissions

Answer 41

A notice printed in 10-point type must be given to the person paying the Real Estate Commission that commissions are negotiable.

A broker can share his or her commission with an unlicensed buyer or seller if the broker discloses this to all parties.