BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
TDS Is Still Required of Sellers Who Have Little or No Knowledge of Property
Q: I am representing a seller who just bought a property at a foreclosure auction on the courthouse steps. He painted the interior and cleaned up the outside a bit and is now selling it through me as listing agent. I gave him the TDS to sign and he returned it blank except for writing in the lines on page 2: “Seller bought property at foreclosure and has no knowledge of the property.” We ratified a contract and the buyer’s agent sent the TDS back and said that the seller must complete it anyway. What are the rules here?
A: Civil Code 1102 is very clear. Every seller of a residential 1-4 unit property MUST give to buyer a completed TDS unless an exemption applies; and there is no exception just because a seller has not seen the property nor has little knowledge of the property.
For more information on exemptions from the TDS and additional information about its use in practice see the CAR Legal Memo located at:
http://www.car.org/legal/disclosure-folder/transfer-disclosure-statement/
Some sellers who may have little or no knowledge of the property include:
- REO flippers
- Short sale flippers
- RELO companies
- Heirs who receive property from a closed probate estate
Each of the above must complete the TDS in spite of their limited or lack of knowledge of the property condition.
Note that the questions ask the state of the seller’s knowledge: “Are you (Seller) aware of….?”
So, if a seller is not aware of whether a particular feature, condition or defect is present or affects the property, the answer to that TDS question is “No”.
Remember, if a seller answers “No” to a TDS question that can mean: (1) that the feature, condition or defect is not present; or (2) that the seller is NOT AWARE if it is present.
Civil Code §1102 provides that if the seller willfully or negligently does not comply with these requirements, the seller will be liable to the buyer for any actual damages that result from such a violation.
If the buyer’s agent cannot obtain the TDS, he/she must advise the buyer in writing of the buyer's right to receive the TDS. Civil Code §1102.12(b) In addition, the California courts have held that if the seller who is required to do so does not provide a TDS, the buyer may cancel the purchase contract.
Finally, a buyer cannot waive the right to a TDS.
PRACTICE TIPS:
LISTING AGENTS:
1. If you represent a seller who is generally not familiar with the residential 1-4 unit property being sold, but does not come within a statutory exception, advise them that they must provide a completed TDS to the buyer.
2. Advise such a seller that they should state in the remarks section that they have little knowledge of the property, and the reason (never saw the property, just owned it for a short time, etc.), so that the buyer will understand that a “No” answer is indicating merely a lack of seller awareness of the item being inquired of seller.
3. Seller should check the box on page 1 of the TDS that they are not occupying the property if that is the case.
BUYERS AGENTS:
4. If you receive an incomplete TDS from ANY seller who is obligated to complete that form, advise the listing agent that your buyer is entitled to a completed TDS, and demand that seller provide a completed form.
5. If a seller indicates in the TDS or elsewhere that they have little or no knowledge of the property, advise your buyer that the “No” answers may merely indicate a seller lack of awareness and that buyer should be diligent in their investigations and inspections of the property relative to those matters which may affect value, condition or desirability.
6. If a seller refuses to provide a completed TDS, advise your buyer of that fact IN WRITING and ask them if they wish to proceed with the purchase. Document that advice in your file as required by the Code.
7. Buyers who may wish to cancel should be referred to an attorney for counsel before proceeding. If the buyer wishes to proceed, counsel your buyer that he/she should be diligent in his/her investigation of the property and those factors which may affect the property.
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 2012 01/27/12