BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Handling Incomplete and/or Outdated Disclosure
Documents Supplied by Other Brokers
Q: It is frustrating when representing a Buyer to receive incomplete and/or outdated disclosure documents from the Listing Agent/Seller. Is it a good idea to send the new SELLER ADVISORY REGARDING COMPLETING THE REAL ESTATE TRANSFER DISCLOSURE STATEMENT AND OTHER SELLER DISCLOSURE FORMS to the Listing Agent/Seller when our brokerage does not represent that Seller? I want to be able to meet my fiduciary duties to our Buyer but I do not want to create the impression that we are also representing the Seller (which I learned after reading your Weekly Practice Tip on Dealing with “Limited Service Brokers”).
A: We have received several inquiries regarding what Selling Agents should do when they receive any incomplete disclosure documents. Statutes, Purchase Agreement forms and CalBRE all play a role in your duties with regard to requirements regarding complete disclosures and their delivery:
Statutory Requirements: The statute which governs the Real Estate Transfer Disclosure Statement (Civil Code Section 1102) and the statute which governs the Natural Hazards Disclosure Statement (Civil Code Section 1103) puts the burden on the Selling Agents to obtain the statutory disclosures and to document their efforts to obtain those disclosures. Civil Code Section 1102.12 specifically provides that if the TDS cannot be obtained:
“. . .the broker shall advise the transferee [buyer] in writing of his or her rights to the disclosure. A licensed real estate broker responsible for delivering disclosures under this section shall maintain a record of the action taken to effect compliance . . .”
Purchase Agreement Forms Requirements: Although the statutes do not define what constitutes a fully- completed TDS, the 3 major Purchase Agreement forms now define that term. For example, the current C.A.R. Purchase Agreement states in Paragraph 10 A(2):
“Any Statutory Disclosure … is considered fully completed if Seller has answered all questions and completed and signed the Seller section(s) and Listing Agent, if any, has completed and signed the Listing Broker’s Section(s) or, if applicable, an Agent’s Visual Inspection Disclosure (C.A.R. Form AVID) …”
CalBRE Requirements: CalBRE has taken the position that Selling Agents should determine whether all questions on the disclosure forms were fully completed, including whether the Seller provided an explanation to any questions that were answered “Yes” and whether the Seller signed those disclosures. In view of the contractual definitions of what constitutes a fully-completed disclosure and the position taken by CalBRE as to the duties of a Selling Agent, it is arguable that the Selling Agent has not really received the disclosure documents if those forms are, in any way, incomplete.
PRACTICE TIPS: This Week’s Tip will provide guidance on the appropriate steps that Selling Agents should take when the Sellers’ disclosures are incomplete:
1. When representing Buyers, the best practice is for Sales Associates to read through all of the disclosure documents before providing that documentation to the Buyers. A TDS is incomplete if the Seller has skipped any questions or has failed to provide explanations for every “Yes” or has failed to sign the Disclosures in Section II (Section V is not signed by the Seller until after everyone else has signed their sections). The TDS is also incomplete if the Listing Agent failed to complete and sign their section of that form. The actual disclosure statement at the front of the NHDS packet is incomplete if the questions have not been answered or the Seller or the Listing Agent has not signed those documents (the Selling Agent is not obligated to sign that form).
2. If the disclosure documents are incomplete, the Selling Agent needs to advise the Buyers in writing (e-mail is a writing) that the disclosure documents are incomplete and recommend that the disclosures be sent back for completion.
3. Buyers should be asked if they want to follow the Selling Agent’s advice. Whether the Buyers choose to follow that advice or decline to follow that advice, the broker file must include proof that the Buyer received the appropriate advice and recommendations from the Selling Agent and the Buyers’ decision should also be documented in the broker file.
4. If the Buyers agree that the disclosures should be returned to the Sellers/Listing Agent with a request that the Sellers provide a completed form, the Buyer can also authorize the Selling Agent to provide the Seller/Listing Agent with the Seller Advisory Regarding Completing the Real Estate Transfer Disclosure Statement and Other Seller Disclosure Forms.
5. Attached to this Weekly Tip is a sample letter that can be used to provide the Buyers with the correct information and advice; also attached is another sample letter that can be provided to the Listing Agent requesting that the Seller complete the disclosures.
6. If the Seller refuses to fully complete the disclosures, then the Buyer should be encouraged, in writing, to issue a Notice to Perform. The C.A.R. Notice to Seller to Perform (NSP) includes a demand to deliver “fully completed Statutory Disclosures” and the PRDS Notice to Perform (from Buyer to Seller) includes a demand to provide the Buyer with “fully completed Disclosure Documents”.
7. If the Buyer wants additional information and/or confirmation that there is nothing else that the Sellers can add to complete the disclosure documents, then the Buyers should be encouraged to put their requests for information in writing. The Buyers’ written request can then be forwarded to the Listing Agent with a request that the Sellers respond to the Buyers in writing. If the Buyers do not want additional information, then that decision should be documented in the broker file, preferably by sending a confirming e-mail.
8. When transmitting the disclosure documents and/or other information to the Buyer, the Selling Agent should make sure that the following language is used in the e-mail or on the receipt form: “I HAVE NOT AND WILL NOT VERIFY OR INVESTIGATE THE INFORMATION SUPPLIED BY THIRD PARTIES.”
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.
SAMPLE LETTER/E-MAIL TO BUYER REGARDING
INCOMPLETE DISCLOSURE FORMS
Dear (Name of Buyer) :
Attached is a copy of [insert name of disclosure form(s), e.g., the Real Estate Transfer Disclosure Statement (“TDS”), or the CAR Seller Property Questionnaire (“SPQ”), or the PRDS Seller’s Supplemental Checklist (“SSC”) or the SFAR Seller’s Supplement] form(s) that I received from [insert source, such as the name of the Listing Sales Associate].
Although I have not and will not verify or investigate the information provided in that documentation, I have read the Seller’s disclosures. I noticed that some of the questions have not been answered and/or there is no explanation for some of the “Yes” responses. [Best practice is to cite examples: “For example, Question II C-1 was not answered.”
I strongly recommend that you not accept incomplete disclosure documents in the purchase of this Property. I recommend that we send the Listing Agent a written request that the Seller fully complete the forms and provide a copy of the attached Seller Advisory that my Brokerage uses on our listings to help Sellers understand the serious nature of the disclosure process. That form encourages Sellers to take reasonable steps to make sure that they are providing all relevant information about the Property including any disclosure documents or reports that they might have received when they bought the Property.
Please advise me as to whether you want me to follow-up with the Listing Agent to have the Seller fully complete the disclosures.
If you have any other questions or concerns regarding these disclosures that you wish me to relay to the Seller’s agent, please advise me in writing.
I look forward to hearing from you.
SAMPLE LETTER/E-MAIL TO LISTING AGENT REGARDING
INCOMPLETE DISCLOSURE FORMS
Dear (Name of Listing Agent) :
As the agent for the Buyer, we are requesting that the Seller comply with the terms of the Purchase Agreement which specifies that the Seller must provide a fully completed TDS (answered all questions and provided explanations for every “Yes” answer). The Seller must also sign the TDS in Section II and you, as the Listing Agent, must complete and sign your section of the TDS.
Some [or all] of the disclosure documents you provided are incomplete [best to cite specific examples]. Those documents are attached. The Buyer is requesting that the forms be fully completed.
The Buyer has also requested that I forward to you the attached Advisory regarding what Sellers should do to meet their disclosure obligations. Hopefully, with this guidance, the Seller will be able to fully disclose all relevant information.
Please provide the completed disclosure form within _____ days. If the Seller refuses to comply with this request, then that refusal needs to be given in writing to the Buyer so that the Buyer can determine whether or not to proceed with this transaction.
Thank you for your courtesy and cooperation with respect to this matter.