BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2007-2008 Regular Session
SB 127 S
Senator Kuehl B
As Amended April 18, 2007
Hearing Date: April 24, 2007 1
Civil Code 2
BCP:jd 7
SUBJECT
Property Transfers: Disclosures
DESCRIPTION
This bill would require delivery of transfer disclosure
statements relating to the sale of real property,
manufactured homes and mobilehomes before transfer of
title, but no later than 10 calendar days after the
execution of the purchase agreement.
BACKGROUND
Although flexible in timeframe, the process of purchasing
real property generally proceeds through a set number of
steps. The process begins with the making of an offer by
the prospective buyer, the seller can accept that offer,
make a counter offer, or reject that offer. Acceptance of
an offer or counter offer generally occurs by the parties
executing a purchase agreement, containing the accepted
offer, or counteroffer, financing terms, and other
conditions. That agreement could also specify the duration
of escrow, upon the close of which, the purchase price is
to be paid, and title is to be transferred.
In order to provide purchasers of real property with
adequate information about the property, existing law
requires the delivery of various disclosures to the buyer
prior to the transfer of title. Those disclosures include
details of any known defects in the property, potential
environmental hazards, encroachments, zoning violations,
nuisances, lawsuits, any flood, fire, or earthquake risk,
(more)
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and in a common interest development, various disclosures
made by the homeowner's association.
Since these disclosures may be made up until the transfer
of title, sellers may delay their delivery for various
reasons to the possible detriment of prospective buyers.
Accordingly, this bill would require these disclosures to
be made before transfer of title, but no later than 10 days
after execution of the purchase agreement.
CHANGES TO EXISTING LAW
1. Existing law requires certain transferors of real
property, manufactured homes, mobilehomes, and
residential stock cooperatives, consisting of one to four
units, to provide detailed disclosures to the transferee
of the property. [Civ. Code 1102 et seq.]
Existing law requires the transferor to deliver a
transfer disclosure statement (TDS), and other
disclosures, as soon as practicable before transfer of
title, or close of escrow, when transferring:
real property, except in certain cases; and
[Civ. Code 1102.3(a).]
manufactured homes or mobilehomes, provided
that the sale or lease with an option to purchase
involves an agent. [Civ. Code 1102.3a(a)(1).]
Existing law generally requires the transferor of real
property, or manufactured home within a hazard zone to
deliver a natural hazard disclosure statement (NHDS) as
soon as practicable before transfer of title. [Civ. Code
1103.3.]
Existing law allows a prospective purchaser to terminate
an offer, within a specified time frame, if the above
disclosures are delivered after the execution of an offer
to purchase. [Civ. Code 1102.3, 1103.3.]
This bill would, instead, require delivery of disclosures
as soon as practicable before transfer of title, but no
later than 10 calendar days after the execution of the
purchase agreement.
2. Existing law , the Davis-Stirling Common Interest
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Development Act, defines and regulates common interest
developments (CIDs) and requires certain disclosures as
soon as practicable before transfer of title to separate
interests within a CID. [Civ. Code 1368.]
This bill would, instead, require those disclosures to be
provided as soon as practicable before transfer of title
to a separate interest, but no later than 10 calendar
days after execution of the purchase agreement.
COMMENT
1. Stated need for the bill
According to the author,
California law currently requires . . .
disclosures be made to purchasers "as soon as
practicable." This vague term essentially leaves
it to sellers to decide when disclosures will be
made, and allows third parties involved in a
transaction to take as much time as they like.
Since the provision of any one of the disclosures
. . . could change the buyer's willingness to
purchase, current law unfairly benefits the
sellers.
Buyers need full and timely information
concerning the condition of a property in order
to make an informed and thoughtful decision . . .
The intention of the law regarding disclosure is
to provide meaningful and timely information
about the condition of the property being sold or
transferred. These disclosures are rendered
meaningless if they are not received in a
reasonable enough amount of time for the buyer to
address their content.
2. Implications of requiring earlier disclosures
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SB 127 would shorten the time period in which disclosures
must be provided to purchasers of real property. Those
disclosures essentially fall into two categories: (1)
disclosures required for residential real property
transactions involving between one and four units,
including manufactured homes and mobilehomes; and (2)
association specific disclosures required for homes
within a CID.
a. Residential real property disclosures
Residential real property disclosures include, among
other things, the broad transfer disclosure statement
(TDS), information about Mello-Roos liens, property
taxes, former use as a federal or state military
training location that could possibly contain
explosive munitions, and a natural hazard disclosure
statement (NHDS), disclosing risks of flooding, fire,
and other natural hazards to the property. [Civ. Code
1102 et seq.] Failure to provide the statutory
disclosures does not, by itself, invalidate a
transfer, but any negligent or willful violation
subjects the seller to liability for damages as a
result of that failure. [Civ. Code 1102.13,
1103.12.]
Pursuant to the California Association of Realtor's
California Residential Purchase Agreement and Joint
Escrow Instructions, C.A.R. Form RPA-CA, Revised
10/02, the seller, unless otherwise agreed upon, has 7
days after acceptance to deliver the TDS, NHDS, and
other disclosures listed above.
In comparison, this bill would set a statutory
deadline of 10 calendar days for all of those
disclosures. Thus, SB 127 provides parties using that
agreement with up to three additional days of
flexibility, if needed, to provide those disclosures.
For parties using alternate forms, this would
prescribe an exact time frame by which the disclosures
must be delivered.
Under current law, sellers are able to approximate
information that is unknown at the time of the
disclosure, and are not deemed to be in violation if a
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subsequent act renders disclosed information to be
inaccurate. [Civ. Code 1102.5.] As a result of
providing these disclosures potentially earlier in the
process, unprepared parties may provide incomplete
disclosures, or the disclosed information may later
become inaccurate due to a later occurring event.
Sellers contemplating the sale of their home could
comply with the earlier disclosure requirements by
gathering the required disclosure information while
preparing for sale of the property. If information
provided by the seller becomes inaccurate due to a
later event, existing law allows sellers to amend
those initial disclosures. Existing pre-made purchase
agreements further cover this situation by mandating
amended disclosures, for example the above C.A.R. form
states:
In the event Seller, prior to the Close of Escrow,
becomes aware of adverse conditions materially
affecting the Property, or any material inaccuracy
in disclosures, information or representations
previously provided to Buyer of which Buyer is
otherwise unaware, Seller shall promptly provide a
subsequent or amended disclosure notice, in
writing, covering those items. [C.A.R. Form
RPA-CA, Revised 10/02.]
As a result of earlier required disclosures, sellers
of homes with longer escrow periods may need to
provide updated disclosures when conditions change.
b. Issues raised by a decreased time frame for CID
association disclosures
In addition to the above disclosures, purchasers of
separate interests within a CID must receive copies of
the governing documents, certain financial reports,
amount of the association's current regular and
special assessments and fees, unresolved notices of
violation, and related information. Current law
requires those disclosures to be delivered as soon as
practicable before transfer of title, or the execution
of a real property sales contract.
This bill would not affect the timing for real
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property sales contracts (agreements to convey
property upon the satisfaction of conditions that may
occur after more than one year), but would require
disclosures for standard contracts to be delivered no
later than 10 calendar days after execution of the
purchase agreement. In contrast, both the California
Association of Community Managers, and the California
Association of Realtors note that the above referenced
C.A.R. Residential Purchase Agreement allows
prospective buyers at least 17 days for those
disclosures.
While that agreement may be modified, the timing
requirement appears to be based upon the procedure for
receiving those disclosures from an association.
Pursuant to subdivision (b) of Section 1368 of the
Civil Code, the association "shall, within 10 days of
the mailing or delivery of the request, provide the
owner of a separate interest with a copy of the
requested [information.]" Thus, the association must
be requested to provide various disclosures. Upon
delivery to the seller, or escrow officer, those
disclosures must be itemized and delivered to the
purchaser. The California Escrow Association (CEA),
in opposition, argues that:
[I]n most escrows involving common interest
developments, the seller delegates the duty of
providing association documents to the escrow
officer, who in turn orders them from the
association. It simply takes time for escrow to
be opened, the seller to instruct the office to
obtain the documents, and the escrow officer to
locate the responsible party within the
association.
In order to receive those disclosures from the
association within the 10 days required by this bill,
the seller, or escrow officer, would have to
immediately request the information from the
association, allowing them their statutory 10 days to
deliver the required disclosures. Upon delivery, the
seller, or officer, would then immediately itemize the
documents and deliver them within the same 10 day
period, leaving no time for travel or complications
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that may arise during the process.
To solve this issue, Civil Code Section 1368(b) could
be revised to require the association to provide the
owner with the required documents within 7, not 10,
days after mailing or delivering a request.
Alternatively, this bill could require those CID
disclosures to be delivered to buyers within 20 days,
instead of the proposed 10 day period. Sellers who
remain uneasy about the turnaround time may, instead,
request those disclosures prior to accepting an offer
for the property, although escrow officers would be
without that luxury.
3. Previous opposition has not withdrawn their opposition
as a result of April 18, 2007 amendments
As introduced, this bill would have required the above
disclosures within 3 days after the execution of an offer
to purchase. Thus, every offer would require the seller
to respond with the above described statutory
disclosures. In opposition, the California Association
of Realtors noted that ". . . it may simply not be
'practicable' to complete the delivery before a
prospective buyer signed his or her offer. It should be
kept in mind that the offer does not of itself even
create a contract, but only the opportunity for the
seller to accept." The California Association of
Community Managers (CACM) registered similar concerns,
especially as applied to CIDs, which entail the process
described in Comment 2(b).
As currently amended, SB 127 would instead require
delivery of those disclosures within 10 calendar days
after the execution of the purchase agreement. Staff
understands that the term "execution of the purchase
agreement" was intended to capture the time after which
an offer was accepted, and a purchase agreement was
signed by the parties. At that point, the seller would
have accepted the buyer's offer, made plans for escrow,
and parties would be obligated to each other via that
purchase agreement.
Support: Golden State Manufactured-Home Owners League
(GSMOL)
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Opposition: California Association of Community Managers,
Inc.; California Association of Realtors;
California Escrow Association (CEA)
HISTORY
Source: Author
Related Pending Legislation:SB 948 (Harman), would impose a
minimum education requirement for
board members in a CID.
Prior Legislation: AB 248 (Torlakson, Chapter 876,
Statutes of 1999), created a
separate statutory section for Natural
Hazard Disclosure Statements.
SB 534 (Dunn, Chapter 517, Statutes of
1999), created two separate statutory
disclosure forms to be used in the resale of
manufactured housing and mobilehomes.
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