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What Must a Seller Disclose About Property Defects?

Martinez Law Office, Inc. Jan. 1, 2022

The real estate market in California has been soaring since the onset of the pandemic. In November 2021, the average time on the market for a single-family home was 11 days, and the statewide median price was $782,480.

Homes in Southern California appreciated 14 percent in value year over year, and the median selling price now stands at $750,000. In contrast, homes in the San Francisco Bay Area have a median price of $1,300,000. All figures were compiled by the California Association of Realtors (CAR).

With homes selling so quickly, what are the odds that you could buy a home with defects without even knowing it?

California has strong disclosure laws in effect, but when your real estate or escrow agent throws a ton of paperwork at you to be signed, you may overlook crucial details about anything that could lead to future problems in the property you’re purchasing. You need to carefully consider potential defects before closing the deal.

If you’re a seller, you also need to be careful about disclosing potential or existing defects in the property you’re selling. If you don’t, you might find yourself legally liable down the road when the new owner discovers something wrong that proves costly.

Whether you’re a seller or buyer in or around Santa Ana, California, if you have questions or concerns about property defects and disclosure laws, contact me at Martinez Law Firm, Inc. I have more than 40 years of experience in helping clients resolve issues with real estate transactions.

A Seller’s Disclosure Requirements in California

Anyone selling a residential property in California, whether a single-family home, condominium unit, or manufactured or mobile home, must reveal to the prospective buyer any defects that could affect the purchase price or involve potential repairs or upgrades in the future.

The California Civil Code maintains that “these requirements apply when real property of 1 to 4 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.”

Exemptions exist for foreclosure sales, court-ordered transfers, transfers of a decedent’s estate, transfers from a dissolution of marriage, transfers from one co-owner to another, or from the sale of new homes in a subdivision where a public report must be delivered to the purchaser, among a handful of other exceptions.

Not only is the seller required to disclose conditions that can lower the value of a property or require repairs or upgrades, but if the seller tries to hide these problems, which then appear after a buyer has completed the transaction, the seller can be sued for damages.

The Transfer Disclosure Statement

California requires the seller to complete a standardized document called the Transfer Disclosure Statement (TDS). The TDS requires the seller to reveal any structural information about the property, such as a leaky roof, along with information about the operability of all appliances in the home, as well as disclosing if they are being included in the purchase price.

The seller must also disclose any room additions, damage, neighborhood noise problems, and whether any deaths occurred on the property in the prior three years.

California also requires the completion of a Natural Hazard Disclosure Report/Statement in which the seller must reveal if the property is located in a special flood hazard zone, in an area prone to fire hazards, or in an earthquake fault zone.

A California property seller needs to provide these disclosures to a prospective buyer "as soon as practicable before transfer of title." This may be open to interpretation, but as a general principle, the earlier the better in revealing defects or potential hazards.

Remedies for Concealed Defects

Section B of the Transfer Disclosure Statement asks the seller to attest to any defects. It asks, “Are you (Seller) aware of any significant defects/malfunctions in any of the following?" It then lists checkboxes for defects. If, for instance, the seller knowingly leaves the “roof” checkbox blank, and the buyer soon discovers the roof has substantial leak issues, then a legal action might ensue for any damages suffered.

The burden on the buyer, who becomes the plaintiff, lies in proving that the seller deliberately concealed the roofing problem rather than just being unaware of it or it developing only after the purchase.

If the buyer survives two rainstorms without leakage or damage, but a third rainstorm suddenly wreaks havoc, it might pose a real challenge in proving the former owner knew of the problem. If the first rainstorm sends the roof crashing down on inhabitants, then yes, the owner might have known of the defect and tried to conceal it with new paint or plaster.

If you do go to court over an undisclosed defect, you can sue for compensatory damages to cover the cost of repairs and any loss in value of the home. If you can prove the seller acted with malice, then punitive damages may be available. In rare cases of deceit and resulting serious damage to the property, the transaction can be rescinded – money returned to the buyer, and the property to the seller.

Of course, property insurance, home warranties, and homeowners associations (HOAs) may also be involved in the repair of any defect and resulting damages, but that does not relieve the seller of their disclosure responsibilities.

How Martinez Law Office, Inc. Can Help

If you’re involved on either end of a disclosure dispute, you’re going to need experienced legal counsel. I have represented both parties – seller and buyer – in real estate transactions during my 40-year legal career, and I know the relevant laws and regulations from first-hand experience.

Contact Martinez Law Office, Inc. immediately if you face a defect disclosure issue. I proudly serve real estate clients in and around Santa Ana, California, and throughout Southern California, including Orange, Los Angeles, and San Diego counties.