Transfer Disclosure Statement Includes Construction Defect Litigation

On July 1, 2014, the Real Estate Transfer Disclosure Statement (TDS) was modified in that it now mandates disclosures of the seller’s awareness of specific construction defect claims under Senate Bill (SB) 800. The law goes into effect January 1, 2014, and becomes operative July 1, 2014. The law is codified in Cal. Civil Code §§895, et. seq.

The TDS is a required disclosure for sales transactions concerning one-to-four residential units, with some units being exempt from this requirement. The TDS provides a description of the condition of a property, and when the property is being sold, the statement must be given to a potential buyer as soon as it is feasible to do so, and prior to transfer of title.

What Does the New Law State?

According to the new law, the modified TDS will ask whether the seller has knowledge of certain claims posing a threat to the real property. Such claims include:

  • Claims for damages by the seller due to construction defects.
  • Claims for breach of warranty.
  • Claims for breach of an enhanced protection agreement (these include claims for damages in which it is alleged that there is a defect or deficiency in the property or in the property’s common areas).

The new law also provides standards of construction defect liability for newly-built housing, and a pre-trial process for resolving disputes involving construction defect and building standards violations.

What Is Required of the Seller or Homeowner?

In accordance with SB 800, the seller or homeowner is required to adhere to a certain procedure before filing a construction defect lawsuit. The seller must provide the builder with an absolute right to repair before filing a claim with the desired effect of lessening the likelihood of litigation.

The homeowner must provide the builder with a written claim outlining the violation(s) that the builder allegedly committed. Then, the builder is required to confirm receipt of such claim, and has the right to perform an inspection of the alleged defect(s). The homeowner may then continue with the filing of a lawsuit only if the builder does not make repairs or the homeowner is unhappy with the repairs.

If the property is being sold, the seller is required to reveal to the buyer any information that could have a material effect on the value of the property. Such disclosure must be made at the time of transfer.

What Is the Implication of the New Law?

Under the new law, the seller must inform a potential buyer of any construction defect(s) on the property.  And if the seller reaches a settlement with the builder, and receives a cash award as a result of such settlement, the seller is required to disclose knowledge of the defect(s), and whether repairs were made to correct the defect(s).

For information about Roxanne Minott’s real estate practice, visit Alain Pinel Realtors.

Roxanne Minott

About Roxanne Minott

Roxanne Minott is a New York licensed attorney who attended Brooklyn Law School. She practiced personal injury law, and worked in the area of estate planning. Roxanne most recently worked as a Tax Associate at H&R Block.
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