The individuals who are required to sign the Natural Hazard Disclosure Statement (NHDS) in a California real estate transaction
About the NHDS
The NHDS is a statutory form which became effective in 1999 via AB248 (Torlakson). The NHDS cannot be altered, on its face it has signature lines and identifies the following individuals:
- Transferor(s) – Seller of the home, and there are two signature lines in case there is more than one seller.
- Transferee(s) – Buyer of the home, and there are two signature lines in case there is more than one buyer.
- Disclosure Provider – This signature line is for the third-party report provider who prepared the determinations on the NHDS. The signature can be preprinted since the third party report provider prepares many natural hazard disclosure (NHD) reports in a day.
- Agent(s) – This is where there is uncertainty. It states “Agent(s)” without identifying which “Agent(s)” are supposed to sign, and there are two signature lines, which makes it even more confusing.
Parties Responsible for the NHDS
California Civil Code Section 1103.2(g) provides:
“The disclosure required by this article is only a disclosure between the transferor, the transferor’s agents, and the transferee, and shall not be used by any other party, including, but not limited to, insurance companies, lenders, or governmental agencies, for any purpose.”
This code section identifies the individuals who are required to provide the NHDS - the transferor and the transferor’s agent(s), and it also identifies the individuals who are required to receive the disclosures - the buyer(s). But this code section does not identify the buyer’s agent. So should the buyer’s agent sign the NHDS?
It could be that even though the buyer’s agent is nowhere to be found in this code section, it was the intent of the California Legislature to remain unclear on this question because a buyer’s agent can still be liable whether s/he signs or not.
Failure to Exercise Good Faith in the Transaction May Result in Liability
California Civil Code Section 1103.7 provides:
“Each disclosure required by this article and each act that may be performed in making the disclosure shall be made in good faith. For purposes of this article, “good faith” means honesty in fact in the conduct of the transaction.”
If the buyer’s agent does not sign the NHDS will that relieve the buyer’s agent from liability in the event of a NHD lawsuit? To be sure, the Plaintiff (usually the buyer) in a lawsuit will likely sue all parties of the transaction, including their own agent regardless of which documents their agent did or did not sign. Buyer’s agent has a fiduciary duty to the buyer. Regardless of whether or not buyer’s agent signs the NHDS, buyer’s agent owes the highest standard of honesty to the buyer. If the buyer’s agent fails to exercise good faith in the transaction, buyer’s agent can be liable.
Since the NHD industry is unregulated, it is critical to choose your third party report provider wisely. Learning the differences between NHD report providers through litigation is a lesson you may want to avoid. Having served the California real estate industry for over 30 years, Property I.D. is always the first to comply with federal, state, and local natural hazard disclosure requirements. The Property I.D. Report is the most accurate and comprehensive NHD report available.
Civil Code Reference
California Civil Code Section 1103.2 provides:
“Transferor(s) and their agent(s) acknowledge that they have exercised good faith in the selection of a third-party report provider as required in Civil Code Section 1103.7”
“Good faith” is defined in Black’s Law Dictionary as “An honest and sincere intention to fulfill one’s obligation”