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NHD Reports and NHD Statements — Part 1 of a Two-Part Series on NHD Reports and NHD Statements

by | Mar 29, 2019 | Broker Practice, Environmental Hazards

NOTE:  Also see Part 2:  “Rescission Rights Under the NHD Statement” published on April 5, 2019.

Q:  What is the difference between a Natural Hazard Disclosure Report and a Natural Hazard Disclosure Statement?  It’s so confusing.

 A:  It is easy to be confused.  A bit of history helps.

HISTORY:  Beginning more than twenty years ago, the California Legislature required all sellers of real property and/or their agents to disclose to buyers whether their property was located in certain six zones (the “Six Zones”), as listed below:

  1. A flood hazard zone as designated by the Federal Emergency Management Agency (“FEMA”);
  2. An area of potential flooding after a dam failure (also known as a “dam failure inundation area”);
  3. A high fire hazard severity zone;
  4. A wildland fire area (also known as “state fire responsibility area” or “SRA”);
  5. An earthquake fault zone; and
  6. A seismic hazard zone.

Those six separate laws specified that the seller or their agent is required to investigate and disclose whether the property being sold was in any of those zones. Those laws are still on the books.

However, in many cases, these disclosures were not being made to buyers.  To correct that problem, the Legislature passed another law (the “NHD Law” – Civil Code Sections 1103 through 1103.14) in 1999 mandating the disclosure of these Six Zones to buyers on one 2-page form called the Natural Hazards Disclosure Statement (“NHD Statement”), which is required to be delivered to buyers in basically all transactions where a TDS is required. (See below for details.)

This, in turn, led to the use of NHD Companies who would provide a NHD Report, the lengthy report with which we are now so familiar containing many disclosures, including the 2-page NHD Statement disclosing if the property is in one of the Six Zones.

 IN SUMMARY:

NHD Law:  The law that requires disclosure of the Six Zones in one 2-page report.

NHD Statement:  The 2-Page report detailing whether a property is in any of the Six Zones.

NHD Report:  The lengthy report from a NHD Company with many disclosures regarding natural hazards, that includes the 2-page NHD Statement.

NHD Company:  The natural hazard disclosure company retained to provide the NHD Report.

WHEN IS A NHD STATEMENT REQUIRED? The requirement to provide a NHD Statement to a buyer tracks neatly with the requirements of providing a TDS to the buyer.

Details:  A NHD Statement is required on all residential 1-4 property, co-op, lease/option and sale transactions unless an exemption applies.  Some of the transfers that are exempt from the NHD Statement are:  (1) transfers made pursuant to a court order (such as a probate, bankruptcy or foreclosure sale); (2) transfers made under a power of sale in a trust deed; (3)  transfers that constitute a deed in lieu of foreclosure or a REO sale; (4) transfers made by a fiduciary in the course of administering an estate or trust; (5) transfers between co-owners; (6) transfers between spouses and certain relatives.  However, the one exception to that rule is new construction; there is no exemption for any type of new construction whether or not a Public Report is required. Buyers of new construction must receive a NHD Statement.

CHOOSING A NHD COMPANY:  When a NHD Statement is required and an agent recommends use of a NHD Company to fulfill the obligations of the seller and/or seller’s agent to disclose whether the property is in any of the Six Zones, the NHD Law provides that sellers and their agents are not liable for any errors, inaccuracies or omissions in any information provided in a NHD Report, unless the seller or agent has personal knowledge of the error, inaccuracy, or omission.

This statutory immunity provided by hiring a NHD Company applies ONLY to NHD Statement transactions. Therefore, in non-NHD Statement transactions, sellers and their agents must be sure to engage disclosure companies that are competent, well-insured and willing to indemnify them contractually.  Use only NHD Companies that have been approved by your brokerage.

PRACTICE TIPS:

  1. Even when the NHD Statement form is not required, sellers and their agents are still legally- obligated to disclose whether that property is located in any of the Six Zone. Thus, the requirement to disclose the fact that a property is located in one of the Six Zones applies to ALL SELLERS of ALL sales of EVERY type of real property.
  1. Because the older laws made it the responsibility of the seller and/or their agent to investigate and disclose if the property is in one of the Six Zones, the best practice is to order a NHD Report on EVERY sale of EVERY Property.
  1. Whenever you order a NHD Report, be sure to only select a NHD Company that has been approved by your brokerage.
  2. The NHD Statement must be signed by the Seller and Seller’s Agent. The Buyer should sign acknowledging receipt.  The Buyer’s Agent is not required to sign this Statement.

 This Weekly Practice Tip is an attorney-client privileged document for the exclusive use of clients of Broker Risk Management and their agents.  It may not be reproduced or distributed without the express written consent of Broker Risk Management.  The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.

© Copyright 2019 Broker Risk Management                    03/29/19