By Paul Oster
Q: We recently purchased a condominium in Mammoth and it had been over a decade since we last were involved in a real estate transaction. We were a bit surprised at the volume of paperwork, especially the volume of disclosures just pertaining to the sale. Is that normal??
A: Many people would consider the disclosures to be the boring and trivial part of a real estate transaction, but the true devil can be in these details. And sometimes the critical details can be in what isn’t disclosed, as opposed to what is disclosed. Many buyers and sellers make the age-old mistake of glossing things over, attaching their signatures, and paying for it later. (Sound like millions of loan documents signed in the last decade?) Even worse is today’s acceptance of electronic signature via emails and pdfs. Hell, after a few cocktails any buyer or seller can blast through the process––just click on all the “sign here” boxes.
The standardized forms universally used here in Mammoth as well as in most of California are the product of the California Association of Realtors® and their legal staff.
Some are mandated by the California Civil Code, Health & Safety Code, and/or by other legislative acts. These documents are ever evolving and they have evolved significantly in the past ten years. California leads the way in many things and this is one of them. Real estate practitioners in California are usually familiar with one of these working documents long before their counterparts in other states are introduced to them. Supervising brokers are diligent about agents completing all of the required disclosures before files are deemed complete, and for good reason. Once a property is owned by a bank following foreclosure (known as REOs), the banks as sellers are exempted from some of the disclosures. But you can be sure the buyer will get the bank’s 20-page addendum to the sales contract.
Real estate brokers of the past are somewhat astounded at today’s volume of disclosures. The breadth of disclosures in California today has evolved for several reasons. First, the government has mandated certain disclosures, part of the original Consumer Protection movement. These date back a few decades and look similar to the way they originally did, but they have evolved. Second, many of the disclosures are the result of and reaction to items people sued over, or got sued over. Not all of this is necessarily a by-product of a hyper-litigious state. But the lawyers have certainly helped the real estate industry figure out almost everything humanly possible that could be the subject of litigation in a real estate transaction––from errant golf balls to red-legged frogs to methane gas emitters. (I said almost everything.)
In the ‘90s the volume and type of disclosures, as well as the coordinating sales agreements themselves, evolved substantially in reaction to another glaring problem in California: real estate transactions were being conducted amongst a widening variety of multi-cultural buyers and sellers. The problem in many areas could be worthy of Saturday Night Live if it didn’t become so serious and litigious. Ultimately, the relatively civilized manner of conducting real estate transactions in the state of California became much more explicit and systematized. Today, the forms can all be electronically processed in a variety of languages according to the client’s needs.
Some of the disclosures are disclosures of the obligations of the buyer and seller to complete the disclosures and read the disclosures, and the liability for not doing so. These include the Seller’s Advisory, which the seller is typically presented at the time of the listing agreement. This disclosure advises the seller on his duty to disclose a variety of items about the property and that real estate transactions are not all quick and easy. The buyer also receives a Buyer’s Inspection Advisory at the time of making an offer. This spells out the duties and obligations of the buyers to investigate the property. Most of these suggested investigations become part of the “due diligence” during the escrow period. In a transaction both parties receive the relatively new 10-page Statewide Buyer and Seller Advisory that covers lots of miscellaneous circumstances that parties have sued over in the past few years.
This is where the errant golf ball discussion is. There is also a discussion about the photos of the home displayed on the Internet and accessible to people around the world, so if that gives you the willies …
The one imperative disclosure area for Mammoth that has evolved is in the area of homeowner’s association documents and information. This has been a very good thing. These would include the CC&Rs, by-laws, rules and regulations, minutes of meetings and financial reporting including a state-mandated reserve study.
For decades it was incumbent upon the seller to provide this information during the escrow. Most sellers didn’t keep good records and would provide the minimum. Depending on how scrutinizing the buyer was, there would always be a mad scramble to dig up these documents from alternate sources. Today it is far more sophisticated.
The accountant for the HOA is paid to warehouse all this information and the seller pays the accountant to provide a complete package of information to the buyer, and most of the time on a simple DVD. All of this is done through escrow and the buyer’s approval of the information is a contingency of the sale. And the buyer has already signed a disclosure that obligates him to review it.
Another key disclosure package for the Mammoth area is known as the NHD or Natural Hazard Disclosure. This package of about 30 pages can be some interesting bathroom reading. This disclosure is typically produced by a third-party and covers, among other things, earthquake fault zones, fire hazard zones, flood zones, proximity to airports and industrial areas, etc., and of course disclosure about red-legged frogs and tiger salamanders.
The disclosure reports we most frequently use here in Mammoth also details the property tax and bonds standing of the property and tries to clarify how the property tax will be reassessed after the sale. All-in-all these third party disclosures benefit the transaction greatly.
The list of disclosures does go on, and they can get pretty mundane. The preliminary title report that is normally generated early in the transaction isn’t really a formal disclosure, but it discloses all of the items that are recorded against the property. Again, plenty of mundane things, such as utility easements but sometimes there are surprises: from IRS liens on one of the parties to judgments levied on the property to undisclosed loans and God knows what.
The volume of disclosures the real estate practitioners here in Mammoth use is on par with most communities in California. Some areas actually use more, especially when some government program is involved.
It’s all designed to educate and inform the buyers and sellers in a real estate transaction, and alert them of the details they should be paying attention to. They also prepare the parties for the multitude of things that can happen. Ultimately, completing the disclosures are just one element to closing a successful real estate transaction, and that is the goal of everyone involved.
Happy President’s Weekend!! Enjoy all the snow.
Paul Oster is Broker/ Owner of RE/MAX of Mammoth. A recent archive of his past Q&A columns and other writings, as well as the ability to make comments, can be found at www.Mammoth-Real-Estate-Blog.com.
For legal, accounting, construction, etc., advice, seek out the appropriate professional.