The Real Estate Transfer Disclosure Statement (“TDS”) is required any time an interest in Residential Property is sold.  Residential Property is defined as real property “consisting of not less than one nor more than four dwelling units”.  (Civil Code §1102(a).

The TDS is generally not required for standard residential leases, but applies to standard purchase agreements, land sale contracts and residential leases with an option to purchase.  It also applies to ground leases which include one to four dwelling units.  Civil Code §1102(a).

Certain Residential Property transactions are exempt from the TDS requirement.  The following is a brief list of residential transactions that do not require the seller to complete a TDS (see Civil Code §1102.2):

  • any transfer by Court Order including, but not limited to, transfers by probate order, transfers, by bankruptcy order, transfers by family law order, transfers by writ of specific performance (i.e. Buyer sues Seller to enforce purchase agreement);
  • any transfer by a lender who acquired title by judicial foreclosure,

trustee sale or deed in lieu which includes most REO transactions;

  • any transfer by an executor, guardian or trustee in the exercise of their fiduciary duties in administering a decedent’s estate, guardianship or trust.  This exemption does not apply if the executor, guardian or trustee is the former owner or lived in the property during the past 12 months (i.e. trustee of a revocable or family trust);
  • any transfer between joint tenants, tenants in common or other co-ownership arrangement; and
  • any transfer between spouses.

Contrary to popular myth, corporate Buyers who flip Residential Properties are not exempt from providing a TDS.  Investors must complete a basic inspection and complete the TDS to the best of their ability.

Even if your Seller is exempt from providing a TDS, the agent still owes a duty to conduct a reasonable diligent visual inspection and disclose any material defects (i.e. “Red Flags”), which affect value or marketability.

The agent must conduct a visual inspection of every Residential Property and document any Red Flags or similar disclosure.  Remember, the visual inspection is only as good as the documentation.  This means take pride in completing your AVID and document each Red Flag as accurately as possible.

The take-home message is that the agent still has an inspection obligation even if the Seller is exempt from completing a TDS.


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