© 2011 Cengage Learning

Disclosures Disclosures Chapter 4 © 2011 Cengage Learning

RATIONALE FOR CHAPTER A real estate agent has an absolute duty to protect the interests of his or her client. The client has an absolute right to know all facts that are available to be able to make an informed decision.

© 2011 Cengage Learning RATIONALE FOR CHAPTER Mandatory disclosures create a standard for licensees, buyers and sellers to rely on when making decisions. This chapter will help licensees understand which disclosures are required.

© 2011 Cengage Learning Focus of Presentation There are significant benefits to full, written disclosure to all parties to a transaction.

© 2011 Cengage Learning Focus of Presentation Commercial real estate transactions have their own set of disclosure rules, however, this chapter deals primarily with one-to-four residential units.

© 2011 Cengage Learning Focus of Presentation Understand fully the difference between a fact and a material fact, and the rationale behind the difference.

© 2011 Cengage Learning Focus of Presentation Difference between a disclosure and a mandated disclosure, which is not an option, but is required by law.

© 2011 Cengage Learning Focus of Presentation Difference between a client and a customer, and the higher level of fiduciary responsibility that must be maintained with a client.

© 2011 Cengage Learning Focus of Presentation On-going duty to fully disclose material facts as the escrow proceeds.

© 2011 Cengage Learning Focus of Presentation Different types of required disclosures Agency natural hazards flood and/or fire hazard areas earthquake special study zones property disclosure statements Have you ever encountered problems with non-disclosures?

© 2011 Cengage Learning CHAPTER FOUR OUTLINE 4.1 UNDERSTANDING MANDATED DISCLOSURES 4.2 YOUR FIDUCIARY RESPONSIBILITIES AND DISCLOSURES 4.3 AGENCY DISCLOSURE 4.4 DEATH OR AIDS DISCLOSURE 4.5 REAL ESTATE TRANSFER DISCLOSURE STATEMENT (TDS) 4.6 AGENT’S INSPECTION DISCLOSURE – HOW AND WHY?

© 2011 Cengage Learning CHAPTER FOUR OUTLINE 4.7 SELLER FINANCING DISCLOSURE 4.8 ENVIRONMENTAL HAZARDS DISCLOSURE 4.9 NATURAL HAZARDS DISCLOSURES 4.10 COMMON INTEREST SUBDIVISIONS 4.11 PRELIMINARY AND FINAL PUBLIC REPORTS (SUBDIVISIONS) 4.12 RIGHT OF RESCISSION 4.13 CALIFORNIA ASSOCIATION OF REALTORS® DISCLOSURE CHART

© 2011 Cengage Learning UNDERSTANDING MANDATED DISCLOSURES Caveat emptor, or “buyer beware,” is a thing of the past “Disclose, disclose, disclose” today due to our highly litigious society

© 2011 Cengage Learning UNDERSTANDING MANDATED DISCLOSURES There are different disclosure standards for residential one-to-four unit properties and commercial property.

© 2011 Cengage Learning UNDERSTANDING MANDATED DISCLOSURES The scope of this text deals primarily with one-to-four unit residential properties. Disclosures are necessary with commercial properties phase I, II, and III environmental reports income and expense statements

© 2011 Cengage Learning UNDERSTANDING MANDATED DISCLOSURES Disclosure vs. full disclosure Difference between a fact and a material fact Importance of giving full written disclosure

© 2011 Cengage Learning UNDERSTANDING MANDATED DISCLOSURES Mandated disclosures and the importance of timing when giving disclosures.

© 2011 Cengage Learning YOUR FIDUCIARY RESPONSIBILITIES AND DISCLOSURES Difference between a client and a customer Difference between the two as it pertains to the duties imposed on an agent.

© 2011 Cengage Learning YOUR FIDUCIARY RESPONSIBILITIES AND DISCLOSURES Duties imposed on the agent when acting in a fiduciary relationship, including the special area of dual agency.

© 2011 Cengage Learning YOUR FIDUCIARY RESPONSIBILITIES AND DISCLOSURES Fiduciary duty of an agent to discover and give full written disclosure of visible defects and other material facts about a property or buyer that a principal should know.

© 2011 Cengage Learning YOUR FIDUCIARY RESPONSIBILITIES AND DISCLOSURES Even when no fiduciary duty exists, as with an unrepresented principal, the duty of full written disclosure still does.

© 2011 Cengage Learning AGENCY DISCLOSURE Proper time to give the mandated written agency disclosure. When and where agency election is made and why this is important.

© 2011 Cengage Learning AGENCY DISCLOSURE Pitfall of ostensible agency How and when that can this happen if licensees are not careful.

© 2011 Cengage Learning AGENCY DISCLOSURE This happens when an agent is representing one party and dealing with an unrepresented party, such as a For Sale By Owner, and the agent inadvertently gives advice or direction to the unrepresented party thereby creating an undisclosed dual agency.

© 2011 Cengage Learning AGENCY DISCLOSURE Who the “real” agent is (the broker).

© 2011 Cengage Learning AGENCY DISCLOSURE An agent, or agents in a dual agency situation, should do the best for their respective client while not disclosing unwarranted facts about either principal that would harm them or weaken their respective positions in the negotiations.

© 2011 Cengage Learning AGENCY DISCLOSURE Importance of communicating to the client that even though both principals in a transaction may be represented by the same franchise, it may be two distinctly different companies and, therefore, single agency.

© 2011 Cengage Learning AGENCY DISCLOSURE Sub-agency and why it is seldom used any longer because of the additional liability it imposed on sellers and listing agents.

© 2011 Cengage Learning THE DISCLOSURE PROCESS Use of the acronym DEC, or Disclose – Elect – Confirm.

© 2011 Cengage Learning THE DISCLOSURE PROCESS Timing of the disclosure process. California Department of Real Estate’s mandate can be done “at the earliest practical moment” after an on-going relationship has been established. Define when this time is.

© 2011 Cengage Learning THE DISCLOSURE PROCESS Different types of agency relationships that can exist between the broker and client. Agency relationship exists between the broker and the client, not the agent.

© 2011 Cengage Learning DEATH AND DISCLOSURE A natural death on the property, or a murder or suicide should be disclosed for three years from the date of the incident. If the death was by AIDS, disclosure of the cause of death is unnecessary. If a potential buyer asks an agent if anyone ever died of AIDS on the property, the agent should refer him or her to the seller.

© 2011 Cengage Learning STIGMATIZED PROPERTY Reasons that a property may be considered uninhabitable. What may be a small issue to one person may be huge to someone else, so the Golden Rule would come into play if you are unsure about his or her disclosure responsibilities. If you are unsure, ask your broker.

© 2011 Cengage Learning LICENSED CARE FACILITIES Be aware that a licensed care facility that serves six or fewer people does not have to be disclosed and that a larger one would probably have to be disclosed.

© 2011 Cengage Learning REAL ESTATE TRANSFER DISCLOSURE STATEMENT (TDS) Types of properties included in the mandated TDS-11 disclosures and what issues about the property must be disclosed.

© 2011 Cengage Learning REAL ESTATE TRANSFER DISCLOSURE STATEMENT (TDS) Who must fill out the disclosure statement, when and the nature of what must be disclosed.

© 2011 Cengage Learning REAL ESTATE TRANSFER DISCLOSURE STATEMENT (TDS) Various right of rescission periods available to a prospective buyer.

© 2011 Cengage Learning AGENT’S INSPECTION DISCLOSURE – HOW AND WHY? Exemptions to a seller having to fill out a disclosure form and make note of the fact that even if the seller is exempt, the agent is not.

© 2011 Cengage Learning AGENT’S INSPECTION DISCLOSURE – HOW AND WHY? Easton vs. Strassburger case ramifications on the disclosure process which now includes what the agent knew as well as what they should have known.

© 2011 Cengage Learning AGENT’S INSPECTION DISCLOSURE – HOW AND WHY? The statute of limitations two year period for filing a claim against a licensee regarding a disclosure statement issue.

© 2011 Cengage Learning INSECT INFESTATION Different types of insect infestations that are common in California type of damage each can do to a structure, and the tell-tale signs.

© 2011 Cengage Learning WATER DAMAGE Sources of water damage and the main indicators that a problem exists.

© 2011 Cengage Learning MATERIAL DETERIORATION Different types of material deterioration that can take place in and around a property and the “red flag” issues associated with them.

© 2011 Cengage Learning STRUCTURAL FAILURE Material deterioration with structural failure how one leads to the other various types of structural failure that can occur. Any properties that you have had contact with that had any type of structural failure and what you observed.

© 2011 Cengage Learning STRUCTURAL FAILURE “Red flag” disclosures and how to handle them.

© 2011 Cengage Learning STRUCTURAL FAILURE Benefits of getting a home inspection, a home protection plan, and a pest control inspection.

© 2011 Cengage Learning SELLER FINANCING DISCLOSURE Creative financing Define when it is mandatory (seller financing with one-to-four-unit buildings).

© 2011 Cengage Learning SELLER FINANCING DISCLOSURE What is over-financed and how it affects a seller.

© 2011 Cengage Learning SELLER FINANCING DISCLOSURE Who must disclose any seller financing in a transaction (the arranger of credit).

© 2011 Cengage Learning SELLER FINANCING DISCLOSURE Dangers of a balloon payment.

© 2011 Cengage Learning ENVIRONMENTAL HAZARDS DISCLOSURE Types of environmental hazard lead- based paint Asbestos radon gas Other types of environmental hazards

© 2011 Cengage Learning ENVIRONMENTAL HAZARDS DISCLOSURE Why newer homes may be more susceptible to radon gas than older homes.

© 2011 Cengage Learning ENVIRONMENTAL HAZARDS DISCLOSURE Why is it so important to have the buyers sign the tear-out sheet at the back of the Environmental Hazards Disclosure booklet and place it in the agent’s file?

© 2011 Cengage Learning ENVIRONMENTAL HAZARDS DISCLOSURE When must the Hazardous Waste Disclosure be given to a buyer (non- residential).

© 2011 Cengage Learning ENVIRONMENTAL HAZARDS DISCLOSURE Effects on humans of ingesting lead is the cutoff date for the legal use of lead-based paint.

© 2011 Cengage Learning MILITARY ORDNANCE LOCATION Discuss when and how the disclosure of a military ordinance location must be made.

© 2011 Cengage Learning NATURAL HAZARDS DISCLOSURES Earthquake safety date of enactment of the ordinance (1/1/93) date of construction of the structures that must be disclosed (prior to 1/1/60).

© 2011 Cengage Learning NATURAL HAZARDS DISCLOSURES Agent’s role in explaining any material contained in the booklet and when the client should be referred to another professional.

© 2011 Cengage Learning NATURAL HAZARDS DISCLOSURES Special study zone maps location how wide the special study zone is (1/8 mile on each side of a known active fault).

© 2011 Cengage Learning NATURAL HAZARDS DISCLOSURES Additional Natural Hazards Disclosures: Referring to the Natural Hazards Disclosure Statement, briefly discuss the following: Very high fire hazard zones State fire responsibility areas Special flood hazard areas Areas of potential flooding

© 2011 Cengage Learning COMMON INTEREST SUBDIVISIONS Common interest subdivision. Homeowner’s association and what powers they may have.

© 2011 Cengage Learning COMMON INTEREST SUBDIVISIONS Documents that must be given to a prospective buyer of a property in a CIS and the importance of each with regards to full disclosure.

© 2011 Cengage Learning COMMON INTEREST SUBDIVISIONS Issues of the elderly woman with three cats who buys a condominium, then moves in, only to be told that she must get rid of one of the cats or move as there is a restriction of only two pets allowed.

© 2011 Cengage Learning COMMON INTEREST SUBDIVISIONS Importance of getting and reading the minutes of the last two years’ board meetings to get a clear picture of what is taking place in the complex.

© 2011 Cengage Learning PRELIMINARY AND FINAL PUBLIC REPORTS (SUBDIVISIONS) Mandated issuance of the final public report and the common interest development general information brochure before a buyer is fully obligated to purchase in a new subdivision.

© 2011 Cengage Learning PRELIMINARY AND FINAL PUBLIC REPORTS (SUBDIVISIONS) Difference between a reservation to purchase (pink slip) and a final public report (white slip), and the rights of the parties therein.

© 2011 Cengage Learning RIGHT OF RESCISSION Types of sales transactions and mandated disclosures that allow a buyer a specified time to rescind the contract. Mello-Roos Disclosure Time-share Truth-in-Lending Act Undivided Interest Subdivisions Interstate Land Sales Full Disclosure Act Home equity sales

© 2011 Cengage Learning OTHER REQUIRED DISCLOSURES Following additional required disclosures: Megan’s Law (sex offender registration and disclosure) Water heater bracing Home energy ratings Smoke detector ratings Smoke detector notice Home inspection notice