DISCLOSURES

DISCLOSURES

This section lists important disclosure requirements, which attach primarily to the sale of residential real
property of one-to-four units. In a typical transaction, the seller has 7 days to provide the buyer all required
disclosures or before the execution of the contract in the case of a lease option, sales contract, or ground lease
coupled with improvements. If the seller delivers certain disclosures or amended statutory disclosures after
execution of the offer, the buyer may have three days after delivery in person or five days after delivery by
deposit in the United States mail to terminate the offer or agreement to purchase by delivering a written notice
of termination to the seller or to the seller’s agent.

The obligation to prepare and deliver disclosures is imposed upon the seller and the seller’s agent and any agent
acting in cooperation with such agent. If more than one real estate agent is involved in the transaction, (unless
otherwise instructed by the seller) the agent obtaining the offer is required to deliver the disclosures to the
prospective buyer. If the disclosure is based on a report or opinion of an expert, such as a contractor or
structural pest control operator, the seller and the agent may be protected from liability for any error as to the
item covered by the report or opinion.

The required disclosures are set forth in Civil Code Section 1102 et. Seq. and 1103 et. Seq. Disclosure
requirements can change and it is important to stay informed using sites like the Department Of Real Estate:
http://www.dre.ca.gov.

Please note: If your are a REALTOR® in addition to the disclosures outlined in this section the California
Association of REALTORS® currently provides a Statewide Buyer and Seller Advisory. In addition your local
board of REALTORS® may publish additional local area disclosures for use in your area. Your broker may also
publish and require the use of specific local area disclosures.

Agency Relationship Disclosure (See also Chapter 10.)

To clarify relationships between buyers and sellers and real estate brokers, the law requires persons acting as
agents in certain residential real estate transactions to make statutorily prescribed written disclosures
concerning the agency roles intended. This requirement applies to transactions involving the sale or exchange
of certain estates (including leases of more than one year) in residential real property of from one-to-four

dwelling units, as well as the sale or exchange of mobile homes occurring through a real estate agent. The seller
should receive the agency disclosure before signing the listing agreement.

Principals and agents may modify and change the agency relationship(s) between the parties by written consent
of all of the parties to the transaction. The required agency disclosure form is set forth in Civil Code Section
2079.16.

Smoke Detector and Water Heater Bracing Statement of Compliance

The seller typically shall pay for the installation of smoke detectors and water heater bracing where required by
law. Unless exempt, the seller, prior to close of escrow will provide buyer a written statement of compliance.
Typically these statements are made using standard C.A.R. form Water Heater and Smoke Detector Statement
of Compliance Statement – WHSD.

Disclosure Regarding Lead-Based Paint Hazards

Many housing units in California still contain lead-based paint, which was banned for residential use in 1978.
Lead-based paint can peel, chip, and deteriorate into contaminated dust, thus becoming a lead-based paint
hazard. A child’s ingestion of the lead-laced chips or dust may result in learning disabilities, delayed
development or behavior disorders.

The federal Real Estate Disclosure and Notification Rule (the Rule) requires that owners of “residential
dwellings” built before 1978 disclose to their agents and to prospective buyers or lessees/renters the presence of
lead-based paint and/or lead-based paint hazards and any known information and reports about lead-based paint
and lead-based paint hazards (location and condition of the painted surfaces, etc.). The Rule defines a
residential dwelling as a single-family dwelling or a single-family dwelling unit in a structure that contains
more than one separate residential dwelling unit, and in which each such unit is used or occupied, or intended
to be used or occupied, in whole or in part, as the residence of one or more persons.

Properties affected by the Rule are termed target housing. Target housing does not include pre-1978 housing,
which is:

• Sold at a foreclosure sale (but a subsequent sale of such a property is covered);

• A “0-bedroom dwelling” (e.g., a loft, efficiency unit or studio);

• A dwelling unit leased for 100 or fewer days (e.g., a vacation home or short-term rental), provided the

lease cannot be renewed or extended;

• Housing designated for the elderly or handicapped, unless children reside there or are expected to reside
there;

• Leased housing for which the requirements of the Rule have been satisfied, no pertinent new information is
available, and the lease is renewed or renegotiated;

• Rental housing that has been inspected by a certified inspector and found to be free of lead-based paint.
(The Rule allows use of state certified inspectors only until a federal certification program or a federally
accredited state certification program is in place.)

Sellers (and lessors) of units in pre-1978 multifamily structures will have to provide a buyer (or lessee) with
any available records or reports pertaining to lead-based paint and/or lead-based paint hazards in areas used by
all the residents (stairwells, lobbies, recreation rooms, laundry rooms, etc.). If there has been an evaluation or
reduction of lead-based paint and/or lead-based paint hazards in the entire structure, the disclosure requirement
extends to any available records or reports regarding the other dwelling units.

The federal Environmental Protection Agency (EPA) publishes a pamphlet titled “Protect Your Family From
Lead In Your Home.” This pamphlet describes ways to recognize and reduce lead hazards. The Rule requires
that a seller (or lessor) of target housing deliver this pamphlet to a prospective buyer (or tenant) before a
contract is formed. If this is done after that time the buyer has the right to cancel the contract.

The Rule requires that a seller of target housing offer a prospective buyer ten days to inspect for lead-based
paint and lead-based paint hazards. This 10-day inspection period can be increased, decreased, or waived by
written agreement between buyer and seller. The Rule does not require a seller to pay for an inspection or to

remove any lead-based paint/hazards, but merely gives a buyer the opportunity to have the property inspected.
A list of State-certified lead inspectors and contractors is available by calling the California Department of
Health Services at (800) 597-LEAD.

The Rule further requires that the seller’s (or lessor’s) lead-based paint/lead-based paint hazards disclosures, a
Lead Warning Statement, and the buyer’s (or lessee’s) acknowledgment of receipt of the information, offer of
inspection period (or waiver of same) and the EPA pamphlet be included in an attachment to the contract. Seller
(or lessor), buyer (or tenant) and agent must sign and date the attachment. The retention period, for sellers (or
lessors) and agents, of this document is three years from completion of the sale (or from commencement of the
lease/rental).

A real estate agent must ensure that:

• His or her principal (seller or lessor) is aware of the disclosure requirements;

• The transaction documentation includes the required notifications and disclosures;

• The buyer or lessee/renter receives the EPA pamphlet; and,

• In the case of a sale, the buyer is offered an opportunity to have the property inspected for lead-based paint
and lead-based paint hazards. In the case of a sale, “agent” does not include one who represents only the
buyer and receives compensation only from the buyer.

Violation of the Rule may result in civil and/or criminal penalties.

To obtain more information, a person may call the EPA at 1-800-424-LEAD. The typical form used in
disclosure is the C.A.R. standard form, Lead Based Paint Hazards – FLD.

Real Estate Transfer Disclosure Statement

Many facts about a residential property affect its value and desirability. These include:

• 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;

• flood, drainage, settling or soil problems on or near 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;

• neighborhood noise or nuisance problems; and

• location of the property within a known earthquake zone.

California Civil Code Section 1102.3 requires that a seller of real property consisting of one-to-four residential
dwelling units deliver to prospective buyers a specified written disclosure statement concerning the condition of
the property. The disclosure covers matters within the personal knowledge of the seller and the agent, and
matters based on a reasonably diligent inspection of the property. This requirement extends to any transfer by
sale, exchange, installment land sale contract, lease with an option to purchase, any other option to purchase, or
ground lease coupled with improvements. The following transfers are exempt:

• transfers required to be preceded by delivery to the prospective transferee of a subdivision public report or
where a public report is not required because the offering of subdivided land satisfies all the criteria in
Business and Professions Code Section 11010.4;

• transfer pursuant to a court order;

• transfer to a mortgagee by a mortgagor who is in default; transfer by a foreclosure sale, or pursuant to a
power of sale, after such default;

• transfer by a fiduciary in the administration of a decedent’s estate, guardianship, conservatorship or certain
transfers from a trust;

• transfer from one co-owner to another;

• transfer to a spouse or to a person or persons in the lineal line of consanguinity;

• transfer between spouses resulting from a judgment of dissolution of marriage or of legal separation or
from a property settlement agreement incidental to such a judgment;

• transfer by the State Controller of unclaimed property;

• transfer resulting from failure to pay taxes; and

• transfer to or from any governmental entity.

Agents Visual Inspection- Real Estate Transfer Disclosure Statement

The real estate agent representing a seller of residential property consisting of one to four dwelling units (or a
manufactured home) and any cooperating agent each have the duty to conduct a reasonably competent and
diligent visual inspection of the property and to disclose to a prospective buyer all material facts affecting
value, desirability, and implicitly intended use.

Areas not reasonable accessible are not included in the required inspection. If the real property is a dwelling
unit in a condominium, planned development, or a stock cooperative, the visual inspection need only include
the unit involved and not the common area. It also does not include investigation of areas off the site of the
property or public records and permits in the absence of special circumstances.

Nothing in the law relieves a buyer of the duty to exercise reasonable care to protect himself/herself, including
the facts that are known to or within the reasonably diligent attention and observation of the buyer.

An agent’s certification of performing the required visual inspection is contained in the Real Estate Transfer
Disclosure Statement. This requirement does not apply if the sale is made pursuant to a subdivision public
report or the sale is exempt from the public report requirement pursuant to Business and Professions Code
Section 11010.4, provided that the property has not been previously occupied.

(See also Chapter 10.)

Natural Hazards Disclosure

Typically, these disclosure are made on the Natural Hazard Disclosure Statement (C.A.R. form NHD) and/or
included as part of a package of disclosures provided by third party vendors:

1. Special Flood Hazard Area Disclosure and Responsibilities of FEMA and Dam or Reservoir Inundation
Area

Flood Hazard Boundary Maps identify the general flood hazards within a community. They are also used in
flood plain management and for flood insurance purposes. Flood Hazard Boundary Maps developed by the
Federal Emergency Management Agency (FEMA) in conjunction with communities participating in the
National Flood Insurance Program (NFIP) delineate areas within the l00-year flood boundary termed “special
flood zone areas.” Also identified are areas between l00 and 500-year levels termed “areas of moderate flood
hazards” and the remaining areas above the 500-year level termed “areas of minimal risk.”

A seller of property located in a special flood hazard area, or the seller’s agent and any cooperating agent, must
disclose that fact to the buyer and that federal law requires flood insurance as a condition of obtaining financing
on most structures located in a special flood hazard area. Since the cost and extent of flood insurance coverage
may vary, the buyer should contact an insurance carrier or the intended lender for further information.

2. Disclosures Regarding State Responsibility Areas

The Department of Forestry and Fire Protection (the Department) has produced maps identifying rural lands
classified as state responsibility areas. In a state responsibility area, the state (as opposed to a local or federal

agency) has the primary financial responsibility for the prevention and extinguishing of fires. Maps of these
state responsibility areas and any changes (including new maps to be produced every five years) are to be
provided to assessors in the affected counties.

If a seller knows that the property is located in a state responsibility area or the property is included on a map
given by the Department to the county assessor, the seller must disclose the possibility of substantial fire risk
and that the land is subject to certain preventative requirements. (Public Resources Code Section 4291 lists the
requirements.) Notices of the location of the maps will be posted at the offices of the county recorder, county
assessor, and the county planning commission.

With the agreement of the Director of Forestry and Fire Protection, a county may, by ordinance, assume
responsibility for all fires, including those occurring in state responsibility areas. Absent such an ordinance, the
seller of property located in a state responsibility area must disclose to the buyer that the state is not obligated to
provide fire protection services for any building or structure unless such protection is required by a cooperative
agreement with a county, city, or district.

3. Disclosure of Geological Hazards and Earthquake Fault Zones

Pursuant to the Alquist-Priolo Earthquake Fault Zoning Act, the State Geologist is in the process of identifying
areas of the state susceptible to “fault creep” and delineating these areas on maps prepared by the State Division
of Mines and Geology.

A seller of real property situated in an earthquake fault zone, or the agent of the seller and any agent acting in
cooperation with such agent, must disclose to the buyer that the property is or may be situated in an earthquake
fault zone. This disclosure must be made on the Natural Hazard Zone Disclosure Statement,

In addition, the Seismic Safety Commission has developed a Homeowner’s Guide to Earthquake Safety for
distribution to real estate licensees and the general public. The guide includes information on geologic and
seismic hazards for all areas, explanations of related structural and nonstructural hazards, recommendations for
mitigating the hazards of an earthquake, and a statement that safety or damage prevention cannot be guaranteed
with respect to a major earthquake and that only precautions such as retrofitting can be undertaken to reduce the
risk. The Seismic Safety Commission has also developed a Commercial Property Owner’s Guide to Earthquake
Safety.

If a buyer receives a copy of the Homeowner’s Guide (or, if applicable, the Commercial Property Owner’s
Guide), neither the seller nor the broker is required to provide additional information regarding geologic and
seismic hazards. Sellers and real estate licensees must, however, disclose that the property is in an earthquake
fault zone and the existence of known hazards affecting the real property being transferred.

Delivery of a booklet is required in the following transactions:

1. Transfer of any real property improved with a residential dwelling built prior to January 1, 1960 and
consisting of one-to-four units any of which are of conventional light-frame construction
(Homeowner’s Guide); and,

2. Transfer of any masonry building with wood-frame floors or roofs built before January 1, 1975 (if
residential, both guides; if commercial property, only the Commercial Guide).

In a transfer subject to item 1 above, the following aspects of the structure and any corrective measures taken,
which are within the seller’s actual knowledge, must be disclosed to a prospective buyer:

• absence of foundation anchor bolts;

• unbraced or inappropriately braced perimeter cripple walls;

• unbraced or inappropriately braced first-story wall or walls;

• unreinforced masonry perimeter foundation;

• unreinforced masonry dwelling walls;

• habitable room or rooms above a garage; and

• water heater not anchored, strapped, or braced.

Certain exemptions apply to the obligation to deliver the booklet when transferring either a dwelling of one-to-
four units or a reinforced masonry building. These exemptions are essentially the same as those that apply to
delivery of the Real Estate Transfer Disclosure Statement.

4. Other Disclosures typically included with the Natural Hazards Disclosure and Residential Disclosure Report
provided by third party vendors:

4a. Disclosure of Ordnance Location

Federal and state agencies have identified certain areas once used for military training, which may contain live
ammunition. A seller of residential property located within one mile of such a hazard must, pursuant to Civil
Code Section 1102.15, give the buyer written notice as soon as practicable before transfer of title. This
obligation depends upon the seller having actual knowledge of the hazard. The exemptions, which pertain to
delivery of the Real Property Transfer Disclosure Statement, apply also to this requirement.

4b. Commercial/Industrial Disclosure

4c. Airport Proximity and Airport Influence Disclosure

4d. Database Disclosure (Megan’s Law)

The report will provide additional details about Megan’s Law

4e. Mold Disclosure

The report will provide additional details on Mold and Mold inspections.

4f. Mello-Roos Disclosure

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 thereunder to finance designated public facilities and
services. Civil Code Section 1102.6b requires that a seller of a property consisting of one-to-four dwelling units
subject to the lien of a Mello-Roos community facilities district make a good faith effort to obtain from the
district a disclosure notice concerning the special tax and give the notice to a prospective buyer. The same
exemptions apply as for delivery of a Real Property Transfer Disclosure Statement.

5. Other disclosures:

Environmental Hazard Disclosure Booklet

The booklet, titled Environmental Hazards: A Guide for Homeowners, Buyers, Landlords, and Tenants
identifies common environmental hazards, describes the risks involved with each, discusses mitigation
techniques, and provides lists of publications and sources from which consumers can obtain more detailed
information. Hazards discussed in the booklet are asbestos, radon, lead, and formaldehyde. The booklet also
provides general information on hazardous wastes and the use and disposal of hazardous household products.

If the booklet is provided to a prospective buyer of real property, neither the seller nor a real estate agent
involved in the sale has a duty to provide further information concerning such hazards, other than lead, unless
the seller or licensee has actual knowledge of the existence of environmental hazards on or affecting the subject
property.

If the booklet is provided to a prospective buyer of real property, neither the seller nor a real estate agent
involved in the sale has a duty to provide further information concerning such hazards, other than lead, unless
the seller or licensee has actual knowledge of the existence of environmental hazards on or affecting the subject
property.

As discussed above, in California a seller (with a few exceptions) of residential real property comprising one-
to-four dwelling units must give the buyer a Real Estate Transfer Disclosure Statement. The statement must
include environmental hazards of which the seller is aware. The listing and selling agents must inspect the
property and disclose to the buyer material facts, including environmental hazards (e.g., lead-based paint),
which may affect the value or desirability of the property. Further, the seller or the seller’s agent can give the
buyer (of any real property) a pamphlet titled “Environmental Hazards: A Guide for Homeowners, Buyers,

Landlords, and Tenants.” If the buyer receives the pamphlet, neither the seller nor agent is required to say more
about environmental hazards (again, assuming no awareness of such a problem).

Energy Conservation Retrofit and Thermal Insulation Disclosure

State law prescribes a minimum energy conservation standard for all new construction without which a building
permit may not be issued. Local governments also have ordinances that impose additional energy conservation
measures on new and/or existing homes. Some local ordinances impose energy retrofitting as a condition of the
sale of an existing home. The requirements of the various ordinances, as well as who is responsible for
compliance, may vary among local jurisdictions. The existence and basic requirements of local energy
ordinances should be disclosed to a prospective buyer by the seller and/or the seller’s agent and any
cooperating agent.

Federal law requires a “new home” seller to disclose in every sales contract the type, thickness, and R-value of
the insulation, which has been or will be installed in the house.

If the buyer receives the informational booklet published pursuant to Section 25402.9 of the Public Resources
Code (Home Energy Rating Program Booklet) the seller or the broker is not required to provide information
additional to that contained in the booklet.

Local Option Disclosure Statement

Civil Code Section 1102.6a permits any city or county to require an additional disclosure statement focusing on
some local condition which may materially affect a buyer’s use and enjoyment of residential property. The
statute uses the example of adjacent land zoned for timber production and perhaps subject to harvest.

Local Requirements Resulting from City and County Ordinances

Residential properties located in cities and counties throughout California are typically subject to specific local
ordinances relating to occupancy, zoning and use, building code compliance, and fire, health and safety code
regulations. Whether such matters must be investigated when they are not within the personal knowledge of the
seller or the agent may depend on the circumstances. Civil Code Section 2079.3 provides that the listing and
selling agents’ duty to inspect does not include areas off the site of the property or public records or permits
concerning the title or use of the property in the absence of special circumstances.

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: the seller’s nonforeign affidavit and U.S. taxpayer I.D. number; a
qualifying statement obtained through the IRS attesting to other arrangements resulting in collection of, or
exemption from, the tax; or the sales price does not exceed $300,000 and the buyer intends to reside in the
property.

Because of the number of exemptions and other requirements relating to this law, it is recommended that the
IRS be consulted for more detailed information. Sellers and buyers and the real estate agents involved who
desire further advice should also consult an attorney, CPA, or other qualified tax advisor.

Notice and Disclosure to Buyer of State Tax Withholding on Disposition of California Real Property

In certain California real estate sale transactions, the buyer must withhold 3 1/3% of the total sale 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 the buyer being subject to penalties.
Should the escrow holder fail to notify the buyer, penalties may be levied against the escrow holder.

Transactions to which the law applies are those in which:

• The seller shows an out of state address, or sale proceeds are to be disbursed to a financial intermediary of
the seller;

• The sales price exceeds $100,000; and,

• The seller does not certify that he/she is a resident of California or that the property being conveyed is
his/her personal residence, as defined in Section 1034 of the Internal Revenue Code. (Note: If the seller is a

corporation, the certification would be that the corporation has a permanent place of business in
California.)

For further information, contact the Franchise Tax Board.

Furnishing Controlling Documents and a Financial Statement

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;

• should there be 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 most recent documents of the homeowners’ association, including financial statements,
budgets and insurance information required under Civil Code Section 1365;

• a written statement from the association specifying the amount of the current regular and special
assessments as well as any unpaid assessment, late charges, interest, and costs of collection which are or
may become a lien against the property; and,

• information regarding any approved change in the assessments or fees which is not yet due and payable as
of the disclosure date.

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) will receive from escrow and acknowledge receipt by signing the following notice: :

“IMPORTANT: IN A PURCHASE OR EXCHANGE OF REAL PROPERTY, IT MAY BE ADVISABLE TO