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:
- Seller(s) – Seller of the home, and there are two signature lines in case there is more than one seller.
- Buyer(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.
- Seller’s Agent(s) – For over 20 years there was uncertainty about which Agents sign the NHDS. AB 1289 amended the Civil Code to clarify that Agent(s) representing Seller sign the NHDS.
Buyer’s Agent does not sign the NHDS, but can a Buyer’s Agent still be liable? The answer is YES. Buyer’s Agent has a fiduciary duty to Buyer.
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. In addition, by allowing their buyers to rely on and accept incomplete NHD reports, with Terms and Conditions that protect only the NHD company, buyer’s agents can be held liable for breach of fiduciary duty and negligence for failing to exercise good faith in the transaction and for violating California law.
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 45 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:
“Seller(s) and their agent(s) acknowledge that they have exercised good faith in the selection of a third-party report provider as required in Section 1103.7 of the Civil Code”
“Good faith” is defined in Black’s Law Dictionary as “An honest and sincere intention to fulfill one’s obligation”