CALIFORNIA HOMEBUYERS ENTITLED TO A NATURAL HAZARD DISCLOSURE
REAL ESTATE LEGISLATION, REAL ESTATE PRACTICE, TIPS FOR BUYERS, TIPS FOR SELLERS
August 20th, 2008
Ab 6x went into law in 1998 requiring sellers, and their agents, to disclose natural hazard zones the property lies within to potential buyers. The form that was created to make this disclosure is called a Natural Hazard Disclosure (NHD). Six zone maps must be reviewed and the results disclosed on an appropriate form. The zones are:
- Flood hazard zone
- Dam failure inundation zone
- High fire hazard severity zone
- Wildland fire area zone (aka State fire responsibility area)
- Earthquake fault zone
- Seismic hazard zone (liquefaction risk)
This disclosure law applies to 1-4 residential housing units. It is not uncommon for this disclosure to be provided on land and commercial properties too, even if not required by law. Several types of property are exempt from providing the disclosure:
- probate sale
- bankruptcy sale
- foreclosure sale
- transfers by a fiduciary (trust administrators)
- when the transfer is between co-owners, spouses or relatives
In practice, sellers and agents interpret the law to apply to all real property, so it is prudent to see that a report is delivered to all buyers even if an exemption may apply.
AB 920 changed the law regarding NHD’s in 2005 by requiring third party providers to take responsibility for what their reports state and to sign their reports. It also clarified that when agents and sellers sign the report, they are stating they have not verified the findings but have no knowledge of any errors or inaccuracies in the information disclosed in the report.
Interestingly, the seller is only obligated to disclose to the buyer if the property lies within the two fire zones. If there is no real estate agent involved, the seller must provide disclosures on all 6 zones. Even if the seller knows the property does not lie within any natural hazard zones, they must still provide the disclosure in writing to the buyer.
If a third party vendor is selected to prepare and provide the report, the report must also cover whether the property lies within an airport influence area. Furthermore, if a determination cannot be made as to whether a particular property lies within a zone due to the accuracy or scale of a map, the zone must be marked yes. Exceptions apply to flood and dam inundation zones.
The competitive nature of NHD companies has resulted in many other boiler plate disclosures regarding supplemental tax bills, Mello-Roos districts, property tax rates and Megan’s Law data base availability being bundled with the standard report. Additional optional disclosures using maps include endangered species, proximity to abandoned mines, leaking underground storage tanks and military ordinance locations. Prices for disclosures start at about $59 and can cost more than a $100, depending on the company and items covered. NHD reports are covered by RESPA laws and must be reported on closing statements. Agents are prohibited from kickbacks for referring business to a particular NHD provider. Ultimately, the seller paying for the report should be allowed a select the NHD provider. If the buyer wants a more comprehensive report, offered by someone other than the company selected by the seller, the buyer should be willing to pay for their own report. Several large real estate brokerages and Property I.D. , one NHD provider, just settled a multi-million dollar lawsuit regarding illegal kickbacks in regards to NHD reports.
If you have any questions regarding NHD reports or any real estate matter, please don’t hesitate to contact me:
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
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