Real Estate Sellers Can Keep No Secrets

Most people have heard of the term "caveat emptor" — let the buyer beware — but using that rule as a buyer of real estate, you have to determine whether or not the deal you are entering into is fair.

Here in California, however, caveat emptor no longer has application to real estate transactions. In the sale of a house or other property in California, the sellers must disclose facts known to a that materially affect the property or desirability of the property cannot be easily discovered by the buyer.

Our state law is no longer "buyer beware"; now it is "seller beware." In 1975, the state Legislature recognized the special duty of disclosure on the sale of houses and other property and enacted a statute that requires the seller of property to deliver a document, called a transfer disclosure statement, that contains information regarding the condition of the property.

The disclosure statement must be supplied when there is a sale or exchange, lease with purchase option, purchase or a ground lease.

The disclosure statement must contain specific information regarding things such as appliances and improvements on the property, their condition, and any defects or malfunctions of the improvements. It includes features shared in common with other owners (such as a driveway, a wall or a fence, encroachments or anything built or located over the property lines) and easements, additions, alterations, or modifications made without permits or not in conformance with building codes.

Also, the disclosure must contain information about any fill soil on the property, flooding problems, major damage to the property, zoning violations, noise problems or nuisances, deed restrictions, whether the property is covered by a homeowners association and any lawsuits affecting the property.

In addition to the statutory duties contained on the disclosure statement, any fact known to the seller that affects the desirability of the property also must be disclosed.

Examples of things that may affect the desirability of the property include termites, dry rot, permit or zoning problems and inadequacy of available water. Some other things that a seller may have to disclose include facts that a person has died on the premises or that a gruesome crime had occurred on the property.

If grandpa's ghost roams around at night, you'd better tell any buyer about him — failure to do so could come back to haunt you.

If the seller of the property is aware of a buyer's particular sensitivity, additional disclosures also may be required. For example, while it may be desirable for some people to live near a school, it might be undesirable to a person who works nights.

It is important if you're selling property to take the disclosure requirements of California law very seriously. Failure to disclose material facts could result in a lawsuit against you with the possibility of very significant damages.

Sometimes, the failure to disclose material facts results in punitive damages against a seller. Such damage could be based upon fraud for an intentional failure by you to disclose a material fact that would had kept the buyer from purchasing the property.

Keep in mind that "property" in the context of real estate not only means a residential or commercial building, but also includes vacant or unimproved land.

All real estate agents and brokers involved also have legal duties to disclose important facts, but that is another legal area.

While the seller of property has a duty to disclose, the buyer of the property also should make reasonable investigations.

If the buyer of the property has a particular sensitivity, the buyer should ask specifically certain questions about his or her area of concern.

Even under California's duty to disclose, the buyer still must exercise "diligent attention and observation." If you have any doubts as either a buyer or seller, you should discuss your questions and concerns with your real estate agent or your attorney.

James A. Testa is senior partner of the San Marcos-based law firm of Testa & Associates, LLP, and can be reached at 760-891-0490.