SB 652: Homeowners Required To Notify Potential Buyers Of Construction Defect Claims

Feb 05 2015

By: Richard H. Glucksman and Jon A. Turigliatto
February 5, 2015

Beginning July 1, 2014, SB 652 amends the Transfer Disclosure Statement required under Civil Code §1102.6 for residential property, to ask sellers about the following type of specified claims “threatening or affecting” the property:

Claims for damages by the seller pursuant to Civil Code § 910 or 914.
Claims for breach of warranty pursuant to Civil Code §900.
Claims for breach of an enhanced protection agreement pursuant to Civil Code §903.
Claims alleging defect or deficiency in the property or common area improvements pursuant to Civil Code §910 or 914.

Newly enacted SB 652 requires the seller of residential property to disclose to potential purchasers all specified claims of damages related to construction defects, including all pre-litigation claims presented to the builder and the status of those claims.

Existing law, pursuant to SB 800, requires a homeowner to follow a mandatory procedure prior to filing a construction defect lawsuit. The process requires the homeowner to submit the claim to the builder, and then gives the builder a right to repair the defects. If the builder fails to make repairs, or the repairs are not adequate, the homeowner may proceed with the filing of a lawsuit. While existing law also requires that a seller of residential property disclose at the time of transfer anything that materially affects the value of the property, there is no requirement that a homeowner notify a potential buyer of a construction defect within the home.

There is presently no statutory requirement that a homeowner notify a potential buyer of a construction defect within the home. For example, if a homeowner receives a cash settlement based on an alleged defect, the homeowner does not need to disclose the nature of the defect to the prospective purchaser or whether a repair was made. A potential buyer should be aware of this fact and know whether or not that defect has subsequently been repaired.

SB 652 gives potential buyers notice of whether or not a claim for defects was made with respect to the property and whether or not those defects were subsequently repaired. The potential buyers can then rely on the disclosures in determining whether or not to purchase the property, with a lack of disclosure possibly creating liability for the seller.