BROKER RISK MANAGEMENT
RISK MANAGEMENT TIP
Q: I am a listing agent, and the seller is asking if she has to sign the NHD report as she is concerned about potential liability if the report has errors. Now, I have that same concern if I sign the report. So, who has to sign an NHD report and is there potential liability for sellers or sellers’ agents if they sign and that report is wrong?
A: The law requires the seller and seller’s agent (but not the buyer’s agent) to sign the NHD form, as well as the third-party disclosure company if one is used. (Cal. Civ. Code § 1103.2.) Here is the applicable language in the NHD form as set forth in that Code Section:
“Transferor(s) and their agent(s) acknowledge that they have exercised good faith in the selection of third-party report provider as required in Civil Code Section 1103.7, and that the representations made in this Natural Hazard Disclosure Statement are based upon information provided by the independent third-party disclosure provider as substituted disclosure pursuant to Civil Code Section 1103.4. Neither transferor(s) nor their agent(s) (1) has independently verified the information contained in this statement and report or (2) is personally aware of any errors or inaccuracies in the information contained on the statement.” (emphasis added)
Your concern about liability of a seller or their agent for an error in an NHD report are addressed in the Civil Code Sections that created the NHD Statement requirement.
The CAR Legal Q&A on this subject states: “Further, Civil Code § 1103.4 provides that sellers and listing agents receive the benefit of a liability shield when they hire experts in natural hazard discovery, such as licensed engineers, land surveyors, or geologists, to provide disclosure information, including reports disclosing that the property is located in one or more natural hazard zones. In other words, neither the seller or listing agent is liable for any errors, inaccuracies or omissions in any information provided in a third-party disclosure report, unless the seller or agent has personal knowledge of the error, inaccuracy, or omission.”
https://www.car.org/riskmanagement/qa/disclosure-folder/natural-hazard-disclosure
So, when a seller or their agent sign the NHD report they are merely stating that they have “exercised good faith” in the selection of the NHD company and that they are not personally aware of any inaccuracies in that information.
Notwithstanding, if you have reason to believe that an NHD provider is not reputable, these protections may not apply. Therefore, it is recommended that you utilize an NHD provider who is used frequently in the industry.
PRACTICE TIPS
- The seller and seller’s agents should sign the NHD report. Buyer’s Agents are not required to do so.
- If a seller or the seller’s agent actually has knowledge that differs from the NHD report, that must be disclosed in writing to the buyer.
- Use an NHD provider which is commonly used in the industry not an unknown company or company with a questionable reputation.
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.