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Photograph by Paul Myers
Kathy Stakey, of Coldwell Banker in Saratoga, reviews disclosure forms for the sale of a house. What once was handled with one form now requires more than 20.
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Disclosure forms are beginning to pile up
By Jean Newton
Realtors must now add two--no, make that three--more disclosures to an already large stack of documents to be signed during a real estate transaction. In addition to mold and a special tax assessment disclosure, local Realtors received a new disclosure alert last week regarding map changes for state seismic hazards.
The myriad of forms and disclosures that sellers and buyers must sign keeps growing. While some Realtors joke about opening a printing business on the side, the disclosure side of the real estate industry is serious business. Although the requirements can be cumbersome at times, Realtors like Kathy Stakey of Coldwell Banker in Saratoga make it a point to keep up to date on the latest developments.
"There are over 24 forms that must be completed by the seller of a property to remain in statutory compliance. Experienced Realtors are the best professionals to guide sellers through this maze of paperwork. All of these forms are of great importance as the California Civil Code requires that they be presented to the purchasers of their respective property. Experience truly counts in the area of being in compliance with the California law and regulations," Stakey said.
The newest change affecting disclosures came when the California Division of Mines and Geology recently released an official map showing updated landslides and liquefaction areas in the San Jose West Quadrangle, affecting areas of Los Gatos, Saratoga, Campbell, San Jose, Santa Clara and Sunnyvale. According to JCP Geologists, a professional hazard disclosure company that provides reports to the California Association of Realtors, the map release was two weeks ahead of schedule and came in under the radar of many real estate professionals.
This disclosure alert was important news for people who may have properties currently on the market, since they will need to review disclosure information in light of the new earthquake hazard zone changes highlighted on the new map. JCP Geologists stated local ordinance requires disclosure from Santa Clara County and selected city maps. Using officially adopted maps is obviously recommended.
Another newly mandated disclosure regarding special assessments became effective Jan. 1, 2002, when Senate Bill 1122 was signed into California law. This new law places the disclosure burden on both the seller and the agent. It requires the seller to make a good-faith effort to obtain a disclosure notice for assessments under the Improvement Bond Act of 1915, in addition to the existing Mello-Roos Community Facilities Act disclosure already in effect. The special tax assessment is typically associated with off-site land improvements, such as streets, curbs, and underground sewer and water infrastructure.
"When it comes to disclosures, understanding this kind of detail can be difficult for the average buyer and seller. That's why a knowledgeable Realtor is so essential in helping clients through a real estate transaction," said Alicia Tuvell of Coldwell Banker in Los Altos and the president of the Silicon Valley Association of Realtors.
Perhaps the most publicized, and certainly the newest disclosure buzzword is "mold." With the passage of SB 732, the Mold Disclosure Act of 2001, landlords and sellers of both residential and commercial property are required to disclose the existence of mold to potential tenants and buyers. With single-family residential properties, SB 732 changes the Transfer Disclosure Statement to add mold to the list of natural hazards. Sellers now need to check off the item if they were aware of mold on the property.
There is debate about the health effects of mold since mold spores are commonly found everywhere. However, some people are more susceptible to certain kinds of mold and serous health problems have been associated with mold contamination. Simple mold found in the shower is typically a different type than the mold identified with causing allergic reactions, asthma episodes, infections and other respiratory problems.
"There are such few hazardous forms of mold out of the hundreds of types, but it is going to dominate the disclosures and lawsuits for the next few years," said Margot Lockwood of Coldwell Banker in Woodside. "I have started to notice that the inspectors are calling mold now for their [own] protection."
In addition to identifying and disclosing mold, there is another serious ramification for property owners on the insurance side that could affect the ability to obtain coverage for homeowners.
"Mold is the new insurance nightmare for homeowners and property owners," said Chris Grammar, an independent insurance broker in Palo Alto. "We are starting to see insurance companies worrying about mold. Two companies, Travelers and California Insurance Group, are not going to accept insurance coverage for property with flood, water or fire damage because of the potential for mold. At some point every company will copy each other and put an exclusion in for mold."
Currently most insurance companies will cover water damage, but Grammar said most are trying to get exclusions for mold right now from the Department of Insurance, which regulates the insurance industry. Grammar, who has been in the insurance business since 1965 and is co-owner of Insurance by Allied Brokers in Palo Alto, likened the situation to the fallout from the Northridge earthquake.
"We went through this in 1995, '96 and '97 with earthquake insurance. When the big companies pulled out, the remaining companies were in lockstep right behind. They all fall like dominoes," said Grammar.
A recent $30 million settlement in Texas has prompted insurance companies to pay closer attention to the mold issue, said Grammar. "We're starting to see mold losses. This has all happened within the last year so there will be lots of changes in the industry as a result."
Grammar's best advice to those purchasing a home is to have it inspected for mold. He also advises calling an insurance agent to have them run a claims report so that home buyers are aware of all the claims that have been paid out. Some options include getting the mold cleaned up to satisfy the requirements or walking away from purchasing the house if it can't be insured for mold.
"We're working on the front lines to figure out what insurance is available for our clients. Let's say you do have water damage or a fire claim. It might be hard to find someone to insure you so you could miss a contingency or you might not be able to close escrow. We want to make sure it's covered in advance so there are no problems," Grammar said.
Keeping abreast of all the new disclosures and issues is part of the service Realtors provide to clients. As a resource to its members, the Silicon Valley Association of Realtors offers educational workshops and is a source for disclosure forms and notices. To find a local Realtor member of the association, check out www.siliconvalley-realtors.org.
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