Providing Links vs. Providing State Pamphlets

BROKER RISK MANAGEMENT

WEEKLY PRACTICE TIP

Providing Links vs. Providing State Pamphlets

BOTTOM LINE: The best risk management advice is to make sure that in every residential transaction file (regardless of who you represent) the Broker can prove that all 4 of the actual pamphlets (Seismic, Environmental, Lead and Energy) were delivered to the Buyer. Sending a link is not sufficient.

Q: For several years our brokerage has been relying upon the Natural Hazards Disclosure Companies to provide Buyers with the various state pamphlets on Environmental Hazards, Lead, Seismic/Geologic, Earthquake Safety and Energy Efficiency We recently discovered that the NHDS packets no longer contain any of the pamphlets but merely give Buyers information about electronic “links” to go online to access the pamphlets. While this may be a paper-saving effort by the NHDS providers, I question whether this is a good “risk management” service for Brokers. Should I be concerned that my Buyer clients are not receiving the proper information? Should I be concerned about that issue when representing Sellers?

A: Yes, you should be concerned regardless of who you represent in a residential sales transaction. Having Buyers sign receipts (either as part of an NHDS packet or as a separate form) that documents the Buyers are merely acknowledging receipt of” links” that Buyers can use (if they choose) to obtain the pamphlets is not currently an acceptable mechanism under either federal or state law.

Federal Law: Federal law mandates that Buyers receive specific information about lead on pre-1978 housing and Buyers must acknowledge receipt of that information. The standard Lead-Based Paint and Lead-Based Paint Hazards Disclosure Addendum specifically states that the Buyer has, in fact received the state pamphlet on Environmental Hazard which contains the relevant information about lead. Arguably, if the Buyers only got a link to access that pamphlet, then they did not actually receive the federally-required information. Having Buyers sign a statement that they have received something that they have not, in fact, received is not a prudent business practice. At worst, the agent could be acting in violation of federal law and, at best, those agents could be in breach of their fiduciary duties. Either way, there should be concern if agents are not meeting their federal obligations if the Buyer does not receive the actual pamphlet.

State Law: There is no specific California statutory requirement that Buyers must receive any of the 4 state pamphlets. Instead, the California Legislature has created an incentive system for Sellers and Brokers to make sure that Buyers receive important information about environmental hazards and other issues.

For example, Civil Code Section 2079.7 provides:

“(a) If a consumer information booklet … is delivered to a transferee [Buyer] in connection with the transfer of real property … a seller or broker is not required to provide additional information concerning, and the information shall be deemed to be adequate to inform the transferee regarding common environmental hazards, as described in the booklet, that can affect real property.”

Section 2079.7(b) makes it clear that known environmental hazards that impact real property must be disclosed. However, the import of this statute is that if the Buyer actually receives the Environmental Hazards pamphlet, the Seller and Brokers are not liable for unknown environmental hazards. This is particularly important in claims and lawsuits regarding hidden hazards, such as mold inside the walls, that are not detectable until the Buyer begins their post-close of escrow remodeling project. If Listing Agents simply provide information about links to access the Environmental Hazards pamphlet online, then arguably the Listing Agents are not only failing to minimize their own risks, they are also not properly protecting the interests of their Sellers. This could then create a viable claim for breach of the Listing Agent’s fiduciary duties to their Seller if the Buyer discovers unknown environmental hazards after escrow closes.

Civil Code Section 2079.8 has a comparable incentive regarding geologic and seismic hazards; Section 2079.9 has that same incentive regarding earthquake safety, and Section 2079.10 has the same incentive for home energy ratings. The key to all four of these code sections is that if the pamphlets are delivered to the Buyer, the liability of the Sellers and the real estate professionals is dramatically minimized. Being able to prove that the pamphlets were delivered to the Buyer is thus an important risk management tool for Selling Agents and Listing Agents.

PRACTICE TIPS:

1. The pamphlets are not copyrighted; they can be copied electronically and put into a pdf or other “read only” format so that the pamphlets can easily be attached to an email or uploaded into an electronic disclosure packet that is maintained online.

2. When creating disclosure receipt forms, Brokers, Sales Associates and staff personnel should specify that the Buyer is acknowledging receipt of the actual pamphlets and not that the Buyer acknowledges receiving the links.

Finally, even though most Buyers may not take the time to read any of the pamphlets, that fact should not considered as a rationale for providing a link to material that will probably not be accessed. There is a significant legal difference between not reading what one receives and not going online to access other information that was not delivered. In fact, it has long been recognized in California that regardless of whether anyone reads the material that they acknowledge receiving, they are legally held to have the knowledge about the contents of that documentation. No such presumption of knowledge currently exists when someone receives an electronic link to obtain other material. Thus, it is essential that real estate professionals prove that the actual state pamphlets were delivered to the Buyers whether or not the Buyers ever read those pamphlets.

Technological conveniences are created faster than the Legislature can enact changes to the law; simply because someone thought that it would be easier and more cost effective to provide links rather than pamphlets does not mean that the Legislature approves of the short cut. Until such time as the California Legislature declares that providing links to access the pamphlets is deemed to be the same thing as delivering the pamphlets, the best risk management advice is to make sure that in every residential transaction file (regardless of who you represent) the Broker can prove that all 4 of the actual pamphlets were delivered to the Buyer.

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.