QUESTION: We are having a dispute in our office regarding which forms are “required”. Is there a legal definition for that term when it comes to transaction documents? If so, what documents are required to be in our files?
ANSWER: The term “required form” is not easily defined because there are multiple bases upon which any specific document may become a “required form” in a transaction:
FORMS REQUIRED BY STATUTE OR LOCAL LAW
There are actually very few real estate transaction forms that can be found in a California statute:
- Disclosure Regarding Real Estate Agency Relationships (Civil Code Section 2079.16)
- Real Estate Transfer Disclosure Statement (Civil Code Section 1102.6)
- Manufactured Home and Mobilehome Transfer Disclosure Statement (Civil Code Section 1102.6d)
- Natural Hazards Disclosure Statement (Civil Code Section 1103.2)
Civil Code Section 1102.6a allows Cities and Counties to require their own Local Option Real Estate Transfer Disclosure Statement (often used to preserve landowners’ “Right to Farm” or to disclose specific problems created by a local issue such as an Airport) and the form for that type of disclosure is in the statute.
Some jurisdictions create their own forms that require Sellers to disclose their compliance with local ordinances such as regulations about sewer lateral repairs/replacements, water conservation regulations and street trees. Depending upon where the Property is located, there may be multiple, legally-required local forms.
Although the vast majority of real estate transaction forms are not required by a statute or local regulation, many forms are required based upon other factors.
SOME OR ALL OF THE CONTENT OF A FORM IS REQUIRED BY STATUTES, CASE LAW OR CONTRACTUAL AGREEMENT
None of the commonly-used Supplements to the TDS (CAR SPQ, PRDS SSC and the SFAR San Francisco Seller Disclosure) are statutory forms; however, all of these forms contain questions that relate to issues that Sellers are legally obligated to disclose (e.g., death on the Property within last 3 years – Civil Code Section 1710.2) either on a statewide or local basis and these forms are required to be used based upon the terms of the Purchase Agreements.
There is no statutory requirement for the Exempt Seller Disclosure forms created by CAR and PRDS but the questions contained in the ESD are primarily about issues that Sellers are statutorily required to disclose, and the CAR and PRDS Purchase Agreements require the Seller to complete that form.
The Possible Representation of More than One Buyer or Seller (CAR PRBS and PRDS CMDA) forms are required to be used by the CAR and PRDS Purchase Agreements and the content of these forms (which enable Agents to secure the clients’ consent for multiple-party representation) is required by California common law.
Certain specific contract disclosures are statutorily required, such as the Megan’s Law and Pipeline disclosures that are contained in standard Purchase Agreement forms but there is no statute which requires use of any specific contract.
If all of the following 4 factors exist: (a) Seller resides in the Property; (b) the Property is residential 1-4 units; (c) a Notice of Default has been filed against the Property; and (d) the Buyer does not intend to occupy the Property, then the Seller is legally required to receive a statutory notice. The CAR Notice of Default Property Agreement (NODPA) is not a required form but the statutory disclosures contained in it are legally required if all 4 of the listed factors exist.
In a residential 1-4 unit sale, if the Parties have agreed to Liquidated Damages and the Buyer puts an Increased Deposit into Escrow after the Initial Deposit, the Receipt for Increased Deposit (RID) is not a statutorily-required form, but it does contain language required by both a statute and the contract to make that increased deposit subject to the agreed-upon Liquidated Damages provision.
There are no federal forms for compliance with the Foreign Investment in Real Property Tax Act, but the content of both the FIRPTA and QS forms is controlled by federal law. The Broker file must show compliance with FIRPTA.
PRDS and other local Associations of REALTORS® have Square Footage and Lot Size Disclosure/Advisory Forms so that Sellers and Agents can disclose known size discrepancies and to document that the size information has not been verified. These forms are not required by statute but the content of these forms is legally required as a result of two important California judicial decisions (Horiike and Salahutdin). CAR will soon be distributing its own Square Footage and Lot Size Disclosure and Advisory (SFLS 6/20) form to enable Brokers to meet these legal requirements.
THE FORM AND CONTENT IS NOT REQUIRED BY LAW BUT IT IS THE STANDARD OF CARE TO USE THE FORM
Many of the Advisories created by CAR and some local Associations of REALTORS® are not required by California law but use of those documents has become the relevant standard of care for Agents. For example, the CAR Statewide Buyer Seller Advisory (SBSA), the PRDS San Mateo Santa Clara Counties Advisory, the SFAR General Information for Buyers and Sellers as well as other local Disclosures & Disclaimers Advisories contain extremely useful information for Buyers and Sellers. Failure to provide the SBSA and/or the local Advisories could well establish that an Agent is operating below the relevant standard of care and subject the Broker and Agent to liability.
CAR, PRDS and SFAR have all created Advisories that explain specific types of transaction issues. For example, there are Advisories on Probate property and sales of property held in trust, Tenancy in Common transactions and Short Sales. The standard of care when these specialized transactions occur is to use the relevant Advisories.
FORMS REQUIRED BY YOUR BROKERAGE
Many Brokers have their own required forms. For example, Brokers who have affiliated relationships with other entities, such as a mortgage broker or title company, are legally required under the federal RESPA law to have an Affiliated Business Arrangement Disclosure.
On advice of counsel, some Brokers have generated their own Advisories and other forms to deal with topics that have led to claims and lawsuits they wish to avoid and/or to deal with customer service issues. Agents should check with their own Broker to determine precisely what forms must be used. Failing to follow company policy regarding what forms to use can create potential liability for the Agent and the Brokerage.
PRACTICE TIPS
- Simply because a form is not a “statutory requirement” does not mean that it is not a required form; when determining what is and what is not required, consider all 4 types of “required forms.”
- Always check with your own Broker as to the relevant standard of care for the type and location of the Property and/or the type of transaction that you are handling to assess what additional documents may be needed.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is 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 Broker Risk Management 2020 06/19/2020