© 2011 cengage learning. disclosures disclosures chapter 4 © 2011 cengage learning

DisclosuresDisclosures

Chapter 4Chapter 4



RATIONALE FOR CHAPTERRATIONALE 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.


RATIONALE FOR CHAPTERRATIONALE 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.


Focus of PresentationFocus of Presentation

There are significant benefits to full, written disclosure to all parties to a transaction.



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



Understand fully the difference between a fact and a material fact, and the rationale behind the difference.



Difference between a disclosure and a mandated disclosure, which is not an option, but is required by law.



Difference between a client and a customer, and the higher level of fiduciary responsibility that must be maintained with a client.



On-going duty to fully disclose material facts as the escrow proceeds.



• 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?


CHAPTER FOUR OUTLINECHAPTER FOUR OUTLINE

4.1 UNDERSTANDING MANDATED DISCLOSURES

4.2 YOUR FIDUCIARY RESPONSIBILITIES AND DISCLOSURES

4.3 AGENCY DISCLOSURE4.4 DEATH OR AIDS DISCLOSURE4.5 REAL ESTATE TRANSFER DISCLOSURE

STATEMENT (TDS)4.6 AGENT’S INSPECTION DISCLOSURE –

HOW AND WHY?


CHAPTER FOUR OUTLINECHAPTER FOUR OUTLINE

4.7 SELLER FINANCING DISCLOSURE4.8 ENVIRONMENTAL HAZARDS

DISCLOSURE4.9 NATURAL HAZARDS DISCLOSURES4.10 COMMON INTEREST SUBDIVISIONS4.11 PRELIMINARY AND FINAL PUBLIC

REPORTS (SUBDIVISIONS)4.12 RIGHT OF RESCISSION4.13 CALIFORNIA ASSOCIATION OF

REALTORS® DISCLOSURE CHART


UNDERSTANDING MANDATED UNDERSTANDING MANDATED DISCLOSURESDISCLOSURES

• Caveat emptor, or “buyer beware,” is a thing of the past

• “Disclose, disclose, disclose” today due to our highly litigious society



There are different disclosure standards for residential one-to-four unit properties and commercial property.



• 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



• Disclosure vs. full disclosure• Difference between a fact and a

material fact• Importance of giving full written

disclosure



Mandated disclosures and the importance of timing when giving disclosures.


YOUR FIDUCIARY RESPONSIBILITIES YOUR FIDUCIARY RESPONSIBILITIES AND DISCLOSURESAND DISCLOSURES

• Difference between a client and a customer

• Difference between the two as it pertains to the duties imposed on an agent.



• Duties imposed on the agent when acting in a fiduciary relationship, including the special area of dual agency.



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.



Even when no fiduciary duty exists, as with an unrepresented principal, the duty of full written disclosure still does.


AGENCY DISCLOSUREAGENCY DISCLOSURE

• Proper time to give the mandated written agency disclosure.

• When and where agency election is made and why this is important.



• Pitfall of ostensible agency • How and when that can this happen if

licensees are not careful.



• 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.



Who the “real” agent is (the broker).



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.



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.



Sub-agency and why it is seldom used any longer because of the additional liability it imposed on sellers and listing agents.


THE DISCLOSURE THE DISCLOSURE PROCESSPROCESS

Use of the acronym DEC, or Disclose – Elect – Confirm.



• 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.



• 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.


DEATH AND DISCLOSUREDEATH 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.


STIGMATIZED PROPERTYSTIGMATIZED 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.


LICENSED CARE FACILITIESLICENSED 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.


REAL ESTATE TRANSFER REAL ESTATE TRANSFER DISCLOSURE STATEMENT (TDS)DISCLOSURE STATEMENT (TDS)

Types of properties included in the mandated TDS-11 disclosures and what issues about the property must be disclosed.



Who must fill out the disclosure statement, when and the nature of what must be disclosed.



Various right of rescission periods available to a prospective buyer.


AGENT’S INSPECTION DISCLOSURE AGENT’S INSPECTION DISCLOSURE – HOW AND WHY?– 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.



Easton vs. Strassburger case ramifications on the disclosure process which now includes what the agent knew as well as what they should have known.



The statute of limitations two year period for filing a claim against a licensee regarding a disclosure statement issue.


INSECT INFESTATIONINSECT 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.


WATER DAMAGEWATER DAMAGE

Sources of water damage and the main indicators that a problem exists.


MATERIAL DETERIORATIONMATERIAL DETERIORATION

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


STRUCTURAL FAILURESTRUCTURAL 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.



“Red flag” disclosures and how to handle them.



Benefits of getting a home inspection, a home protection plan, and a pest control inspection.


SELLER FINANCING DISCLOSURESELLER FINANCING DISCLOSURE

Creative financingDefine

when it is mandatory (seller financing with one-to-four-unit buildings).



What is over-financed and how it affects a seller.



Who must disclose any seller financing in a transaction (the arranger of credit).



Dangers of a balloon payment.


ENVIRONMENTAL HAZARDS ENVIRONMENTAL HAZARDS DISCLOSUREDISCLOSURE

• Types of environmental hazard• lead- based paint• Asbestos• radon gas

• Other types of environmental hazards



Why newer homes may be more susceptible to radon gas than older homes.



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?



When must the Hazardous Waste Disclosure be given to a buyer (non-residential).



• Effects on humans of ingesting lead. • 1978 is the cutoff date for the legal use

of lead-based paint.


MILITARY ORDNANCE LOCATIONMILITARY ORDNANCE LOCATION

Discuss when and how the disclosure of a military ordinance location must be made.


NATURAL HAZARDS DISCLOSURESNATURAL 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).



Agent’s role in explaining any material contained in the booklet and when the client should be referred to another professional.



Special study zone maps location

how wide the special study zone is (1/8 mile on each side of a known active fault).



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


COMMON INTEREST SUBDIVISIONSCOMMON INTEREST SUBDIVISIONS

• Common interest subdivision.• Homeowner’s association and what

powers they may have.



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.



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.



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.


PRELIMINARY AND FINAL PUBLIC PRELIMINARY AND FINAL PUBLIC REPORTS (SUBDIVISIONS)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.


PRELIMINARY AND FINAL PUBLIC PRELIMINARY AND FINAL PUBLIC REPORTS (SUBDIVISIONS)REPORTS (SUBDIVISIONS)

Difference between a reservation to purchase (pink slip) and a final public report (white slip), and the rights of the parties therein.


RIGHT OF RESCISSIONRIGHT 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


OTHER REQUIRED OTHER REQUIRED DISCLOSURESDISCLOSURES

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

© 2011 cengage learning. disclosures disclosures chapter 4 © 2011 cengage learning

Documents

cengage learning slide

cengage learning chapter

cengage learning rationale

disclosure difference

agency disclosure

aids disclosure

written disclosure

chapter mandatory disclosures