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Reading The Tea Leaves: Some Issues That I Consider When Reviewing A Seller’s Disclosure Documents

By Dave Hamerslough

September 13, 2023

As a lawyer, my review of a seller’s disclosure documents is often in conjunction with claims involving an alleged lack of disclosure or with contract and transaction disputes between buyers and sellers. The phrase “reading the tea leaves” has different interpretations. The one that I believe applies to my review of a seller’s disclosure documents is the process of picking up on subtle clues combined with other knowledge I have regarding the property, the area where the property is located, my intuition, and my experience in order to evaluate whether the disclosure documents have been fully completed and/or whether the seller may have additional information/documentation regarding the property. My analysis may provide clues to, among other things, how the seller approached filling out the disclosures or whether there is a statutory, contractual, or common-law position I can assert on behalf of a buyer or seller with respect to contractual performance.

For instance, if a property is 100 years old and the seller indicates in their marketing material that the house has been renovated but their disclosure documents don’t provide any responses that discuss the renovation or provide backup documentation regarding that work, what does that suggest about whether the seller has understood their disclosure obligations? I ask the same question if the disclosures only contains “no” answers to every question. Finally, I might ask the same question if the seller has answered questions with a “yes” but provides no or very limited explanations for those responses.

The following are some of the tea leaves that I look at when reviewing a Transfer Disclosure Statement (TDS), a PRDS Supplemental Seller’s Checklist (SSC), or a C.A.R. Seller Property Questionnaire (SPQ).

  • How long has the seller owned the property? This will tell me how much of the history of the property I am receiving and also may provide a clue as to whether the amount of information the seller has disclosed or its level of detail is consistent with the period of time the seller has owned the property. For example, if a seller has owned a property for an extended period of time but has not provided any historical information in their disclosures, that may suggest that the seller did not understand their disclosure obligations. One thing to remember is that the TDS and the SPQ do not ask the seller how long they have owned the property, while the SSC does ask that question. If I don’t have that information, I look for clues in information available online in part of a property profile, in an MLS listing history, or in Schedule B of the preliminary report.
  • If the seller has owned the property for only a short time, and I am therefore receiving limited history, what information and/or documentation (e.g., historical documents) have been provided to supplement the knowledge being provided by the seller?
  • Historical information and/or documentation is requested in multiple places in the SSC, in Paragraph 5 (among others) of the SPQ, and potentially in Section 1 of the TDS, which addresses the issue of substituted disclosures. If historical information and/or documentation is not provided, I again consider whether the seller understood their disclosure obligations and how I can follow up with the seller or use that omission as part of my factual and legal analysis of the situation.
  • Is the seller occupying the property? If not, how long has that been the case? How long has the property been a rental? Is information available from any tenant and/or property manager? Have there been unlawful detainer actions where the condition of the property has been raised in conjunction with an argument about habitability?
  • I consider not only the information provided in the disclosures but also what has not been provided. For example, if a disclosure mentions a historical repair but there are no details or documentation provided, then perhaps all of the information and/or documentation in the seller’s possession has not been provided.
  • I compare the information in the disclosures with the other information that I know about the property from such sources as the MLS, marketing material, oral statements, inspection reports, AVIDs, etc. or that I may know already based on the location of the property (e.g., neighborhood noise issues, neighborhood soil issues, etc.) If there are issues and/or conditions identified in this other documentation that have not been addressed in the disclosure documents, then I consider why that has occurred and determine how to obtain that information.
  • Do the seller’s responses focus only on the property’s current condition as distinguished from its historical condition, including issues, conditions, and/or defects that may have been repaired either by the seller or their predecessors? If so, this may be a clue that the seller did not understand all of the questions on the disclosure forms, including those that ask about the repair of past issues, conditions, and/or defects.
  • If the property has been renovated or remodeled but the disclosures do not provide any information and/or documentation regarding that work, this may be another clue that the seller did not appreciate the scope and breadth of the information and/or documentation requested in the disclosure documents. I also consider what information, if any, has the seller provided with respect to who did the work, their qualifications, their license status, permitting, engineering, etc.?
  • Are the seller’s disclosures internally consistent? Sellers often provide information in one section of a disclosure form (e.g., a past water leak) but then answer questions in other sections of the disclosure documents discussing the same subject in the negative (e.g., the question in the SPQ regarding water intrusion). Another example is where there is a disclosure about an issue with a neighbor regarding a property line or access, but other questions addressing the same subject are answered with a “no.”
  • What is the effective date, if any, that is filled in the introductory paragraph of the TDS? This may provide a clue as to how current the information is. I also look at the date that the seller signed the disclosure documents. Collectively, this information may provide a clue as to how much time has passed since the disclosures were prepared and/or signed by the seller and whether they need to be updated because of the passage of time.
  • Are there any questions that have not been answered? This may provide a clue as to whether a seller got hung up on a particular question and, if so, whether it was because they didn’t understand the question, had concerns about how to answer it, etc.
  • I also look at the level of detail that the seller has provided in response to any question that has been answered “yes.” The SSC has specific follow-up questions that should prompt the seller to provide explanations. The SPQ simply asks the seller to explain a “yes” response. The level of detail that has or has not been provided by a seller may, again, be important in a disclosure case or in a breach of contract/transactional dispute between a buyer and seller.
  • If I have received prior disclosure documents and/or historical documents regarding the property, what clues do the seller’s disclosures provide regarding any historical issue, condition, and/or defect with the property, whether work has been performed with respect to any such issue, condition, and/or defect, whether that work was successful or whether there has been insufficient time for such an assessment to be made, etc.? Other information may provide an insight as to the completeness of the seller’s disclosure or impact some statutory, contractual, and/or common-law contract right between the buyer and seller.

There are other tea leaves and/or clues that I look for when reviewing a seller’s disclosure documents in addition to those listed in this article. Unfortunately, reviewing a seller’s disclosures for the type of clues that I look for is an art and not a science. It can be difficult to determine how a seller approached filling out the disclosures, including the amount of time they spent, their level of focus and/or detail, the instructions they may have received, to what degree they relied upon historical documents, and their experience and/or sophistication with respect to the subject matters covered in the disclosures.

How I use the clues that I unearth from a review of a seller’s disclosure documents depends on, among other things, the facts and circumstances and the basis of my retention. For example, if I am involved in a disclosure case, these clues will be part of my cross-examination of various witnesses. If I am involved in a contract/transaction dispute, then these clues may provide, among other things, a basis for requesting additional information/documentation from the seller and/or requesting an amended and/or supplemental disclosure. They also may provide, among other things, a potential basis for a statutory, contractual, and/or common-law termination/cancellation of the purchase contract, prompt additional investigations of the property, help a client assess the veracity of the seller and how that may impact the buyer’s choices in the transaction, or ultimately be the basis for a claim.