BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Natural Hazard Disclosures
Q: What is the difference between a Natural Hazard Disclosure Report and a Natural Hazard Disclosure Statement? Aren’t they the same?
A: No, they are similar but different.
BACKGROUND: There are six Natural Hazard Disclosure (“NHD”) zones. The seller and/or listing agent are required to disclose to the buyer if the property is in one or more of those zones. Those six zones are:
1. A flood hazard zone as designated by 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”);
5. An earthquake fault zone; and
6. A seismic hazard zone.
The listing agent is responsible for disclosing if the property is in zones 1, 2, 5 and 6. The seller is responsible for disclosing if the property is in zones 3 and 4.
The six statutes mandating each of these zone disclosures uses the phrase “real property” meaning that these disclosures apply to all real property transactions.
NATURAL HAZARD DISCLOSURE REPORT: The NHD Report is the report you receive when you place an order with a NHD company. Those reports include not only the NHD Statement, disclosing whether the property is in any of the six NHD zones, but also information about other zones or areas such as Mello-Roos or 1915 Bond Act districts, as well as many other disclosures and advisories that the NHD companies have chosen to add over the years as they compete for real estate agents’ business.
NATURAL HAZARD DISCLOSURE STATEMENT: Then, in 1998, Civil Code §1103 was added requiring that, if a TDS is required of the seller in the transaction, then all six disclosures must be disclosed on a NHD Statement, which is a one-page form identified in that code section. You will find the NHD Statement in the NHD Report.
Because CC §1103 states that the NHD Statement is required on all transactions where the seller must provide a TDS, the NHD Statement is not required on transactions where there is an exemption for providing a TDS. That code section goes on to state that the buyer has the same 3-day right to rescind as they have with a TDS if the property is in any one of those six zones.
BOTTOM LINE:
1. If ANY PROPERTY OF ANY TYPE is in one or more of the six NHD zones, that must be disclosed to the buyer.
2. IF A TDS IS REQUIRED, then, in addition, the disclosure stating whether the property is in one or more of the six zones must be on the one-page NHD Statement, and the buyer has a 3 day right to rescind – the same as with a TDS.
PRACTICE TIPS:
1. A NHD Report should be ordered on ALL real property sales.
2. If a TDS IS NOT required, the various purchase agreement forms provide that the buyer has a right to review and approve all disclosures and reports or cancel the contract. So, if the property is in one of the six NHD zones, the buyer would have a contractual cancellation right, unless buyer waived their inspection contingency.
3. If a TDS IS required, then, in addition to the contractual right to cancel, the buyer has a statutory right to terminate the contract as well if the property is in one or more of the NHD zones and the NHD Statement is delivered to the buyer after the contract is accepted.
For more information see CAR Legal Memo “Natural Hazard Disclosure Statement at:
http://www.car.org/legal/disclosure-folder/natural-hazard-disclosure/
CAR Summary Disclosure Chart at:
http://www.car.org/legal/disclosure-charts/summary-disclosure-chart/
Also see Weekly Practice Tip: “Who Signs the NHD Report?”
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. DO NOT FORWARD TO CLIENTS OR THIRD PARTIES. This Weekly Practice Tip is attorney-client-privileged and for the exclusive use of Broker Risk Management’s clients 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.