CA- Banks must disclose facts that affect their properties

7-5-2009 California:

QUESTION: I'm purchasing a bank-owned property (REO). What are the seller (bank) obligations regarding disclosure requirements for REO sales?

ANSWER: Although banks that acquire a property through foreclosure may be exempt from certain California requirements, such as the Transfer Disclosure Statement, they are not automatically exempt from all other disclosures.

Any facts that affect the value and/or desirability of the property known to the seller are required to be disclosed by the REO seller to the buyer. Most REO lenders may claim to have limited knowledge of the condition of the property. But this claim may be contradicted in certain circumstances by inspection reports, status reports, repair estimates and other documentation that the REO lender has regarding the property.

The following are federal and state disclosure requirements that apply to REO sales:

1. Natural Hazard Zones: California law requires sellers to disclose the fact that a property is located in any of six types of natural hazard zone: Special Flood Hazard Area, Area of Potential Flooding, Very High Fire Hazard Severity Zone, Wildland or State Fire Responsibility Area, Earthquake Fault Zone and Seismic Hazard Zone.

2. Megan's Law Disclosure: It is the legal duty of an REO seller to inform the buyer of the availability of the registered sex offender database. Even if an REO seller requires the use of its own purchase contract, the Megan's Law disclosure is still required.

3. Lead-Based Paint Hazards Disclosures: Federal law requires that the sale of any properties built before 1978 provide disclosure of any lead-based paint hazards. The requirements are for'the buyer to be provided with an EPA approved lead-hazard pamphlet; a 10-day opportunity to inspect for lead-based paint hazards, unless otherwise agreed in writing; a lead-based paint disclosure statement; and a disclosure of the presence of any known lead-based paint or lead-based paint hazard in the property.

4) Smoke Detector Statement of Compliance/Water Heater Bracing Statement of Compliance: The seller of any real property of a single-family dwelling or factory-built housing type must certify, in writing, that an existing water heater is properly braced, anchored, or strapped and that the dwelling is in compliance with the smoke detector law.

5) Methamphetamine Laboratory Activity: An REO seller must disclose in writing to a buyer a pending order issued by a local health officer prohibiting the use or occupancy of a property contaminated by meth lab activity.

6) Condominium or Other Common Interest Development Documents (if applicable): An REO seller of a condominium or other separate interest in a common interest development must provide the governing documents and other items to the prospective buyer. The law also requires the homeowner association to provide these documents to the owner upon written request.

7) Agency Disclosure Statement: Real estate agents participating in a transaction (including REO sales) involving one to four residential units (except certain subdivision sales), must provide agency disclosure statements for the real estate transaction. Further, it is the duty of a real estate agent to conduct a reasonably competent and diligent visual inspection of the property, and to disclose to the buyer all facts materially affecting the value or desirability of the property.

Serious consequences can occur in a real estate transaction if an REO lender refuses to provide the legally required disclosures to the buyers. Buyers are advised to seek the counsel of an attorney regarding the legal consequences before closing escrow without these disclosures. ..Source.. by Kathy Yamamoto