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Exemptions from Seller Completing a TDS

by | Apr 7, 2023 | Contracts and Forms

  BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

 

Exemptions from Seller Completing a TDS

 

Issue:  One of the most frequent questions we receive is when a seller is exempt from completing a Transfer Disclosure Statement (“TDS”)?  The following sets forth guidelines for determining when a seller is exempt, if a seller is exempt, and how to handle the seller’s disclosures.

Guidelines:  The requirements for a seller to complete a TDS are set forth in Civil Code 1102.2.  Unless an exemption applies, a TDS is required for all residential properties containing 1-4 residential units, even if the property is mixed-use (commercial and residential).

The exemptions are as follows:

  1. Transfers requiring a public report — and transfers pursuant to § 11010.4 of the Business and Professions Code where no public report is required. This includes a subdivision that is completely built with a residential structure, is entirely within the boundaries of a city, and has no common areas.  New construction of a single home requires a TDS;
  1. Transfers pursuant to court order (such as probate sales, partition action, or by a bankruptcy trustee, etc.);
  1. Transfers after a foreclosure (including a deed in lieu of foreclosure and a transfer by a beneficiary who has acquired the property by foreclosure or deed in lieu of foreclosure);
  1. Transfers by a fiduciary in the course of the administration of a decedent’s estate, guardianship, conservatorship, or trust.

TRUSTEES: All trustees are exempt from completing a TDS UNLESS an exception applies.  An exception to the exemption applies, and sellers must complete a TDS, if the property

(1) is held in a revocable trust, and,

(2)  the trustee is a natural person (e.g., not a bank trust department) and,

(3) who is either (a) the former owner of the property or (b) an occupant in possession of the property within the year preceding the sale.

 

So, if either (1) or (2) or both 3(a) and (b) are “NO” then seller is exempt from completing the TDS.

  1. Transfers from one co-owner to one or more other co-owners.
  1. Transfers made to a spouse or to a child, grandchild, parent, grandparent, or other direct ancestor or descendant.
  1. Transfers between spouses in connection with a dissolution of marriage or similar proceeding.
  1. Transfers by the State Controller pursuant to the Unclaimed Property Law; as a result of failure to pay property taxes; or to or from any government entity.

If a property falls within an exemption to the TDS requirement, sellers should complete the Seller Exempt Disclosure form (“ESD”).  Agents should not ask sellers to complete a TDS if it is not legally required.  Doing so could subject the seller to liability for providing inaccurate information based on the seller’s ignorance of the condition of the property; and expose the seller’s agent to liability for recommending that seller complete a TDS when the seller was not required to do so.

AGENT’S DUTY TO CONDUCT A DILIGENT VISUAL INSPECTION

 

Even if a seller is exempt from completing a TDS, a real estate licensee still has a duty to conduct a reasonably competent and diligent visual inspection of accessible areas in almost all of the above situations — Cal. Civ. Code § 2079. In other words, although the seller of a residential one-to-four property may be exempt from having to provide a TDS, the agents for the parties are not exempt and must conduct this inspection, and disclose the results of the inspection, in almost all residential transactions involving one to four units.

            For more information, see CAR Legal Memo entitled: “Real Estate Licensee’s Duty to

Inspect Residential Property at:  

https://www.car.org/riskmanagement/qa/disclosure-folder/re-licensee-duty-to-inspect

            For more information on completing the AVID, see Weekly Practice Tip entitled:

                        “Handling the AVID the Right Way”

 

            For more information on completing the TDS, see Weekly Practice Tip entitled:  

“Transfer Disclosure Statement – The Right Way”

 

 

WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS.  This Weekly Practice Tip is attorney client-privileged and 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.