By Kay Wilson-Bolton
September 1, 2009
With the 2009 fire season upon us, it is problematic for all residents and poses special circumstances for homeowners who may have their home in escrow at the time a fire sweeps an area.
The California Association of REALTORS® legal staff has provided some very helpful Q and A’s. They provoke thought and consideration for the public and real estate professionals alike.
It has happened more than once that a home in escrow is damaged by fire. If the purchase contract between the parties does not specify who is to bear the risk of damage or loss to the premises during the time between the execution of the contract and the transfer of title, the liability of the parties is governed by the California Uniform Vendor and Purchaser Risk Act (Cal. Civ. Code § 1662).
The current Residential Purchase Agreement and Joint Escrow Instructions was revised in October of 2002 and does not dictate how risk of loss is allocated between a buyer and a seller.
If all or a material part of the premises are damaged before title or possession is given to the buyer, the buyer can cancel the contract and recover any portion of the purchase price paid. It is not clear whether the buyer can alternatively elect to enforce the contract with a reduction in the purchase price equal to the loss of value or cost of repair. (Cal. Civ. Code § 1662.)
After the buyer has taken possession or has received title, the buyer bears the risk of loss or damage to the premises (assuming no fault on the part of the seller). Therefore, if the premises are damaged, the buyer must still complete the contract and pay the balance of the purchase price. (Cal. Civ. Code § 1662.)
If the purchase contract does contain a risk of loss provision, that provision will govern to the extent it is different from or more specific than the Uniform Vendor and Purchaser Risk Act (Uniform Act) (Cal. Civ. Code § 1662).
If fire damage to the property is minor, it is unlikely that the buyer can cancel the contract. The seller will likely be required to repair the property. Paragraph 7A of C.A.R.’s Residential Purchase Agreement requires the property to be maintained in substantially the same condition it was in on the date of acceptance. Under this language, a seller could be obligated to repair fire-related damage to his or her property.
If the damage or loss caused by fires to the property is major, it is possible that the buyer can compel the seller to repair the home but cannot compel the buyer to complete the repairs.
If the damage occurs before the buyer has removed an inspection contingency in his or her purchase contract, the buyer can, of course, exercise any inspection, disapproval, and cancellation rights provided by the contract.
If the damage occurs after the buyer has removed his or her inspection contingency, the buyer generally does not have an automatic right to reinspect the property and approve or disapprove of its condition under most purchase contracts. However, the seller may be obligated to repair the property.
A purchase agreement may, however, require a seller to disclose fire-related information, which in turn may give a buyer a right to cancel a transaction, even if he or she has already removed contingencies.
C.A.R.’s Residential Purchase Agreement provides that if, prior to the close of escrow, the seller becomes aware of adverse conditions materially affecting the property, the seller must provide a subsequent or amended disclosure or notice, which then gives the buyer a right to cancel the agreement.
A seller must disclose the fact of a fire even though it was not significant because the seller has a duty to disclose material facts that may affect the value or the desirability of the property.
California law does not clearly answer whether a seller must disclose past property defects and repairs. At the present time, the law does not appear to require disclosure of past defects and repairs unless the problems may be persistent. In other words, a defect which has been fully repaired and no longer threatens the value or desirability of the property probably need not be disclosed.
On the other hand, defects which are difficult to remedy and which may continue to plague the property may have to be disclosed. Given some uncertainty in this area of the law, many sellers may prefer to resolve doubts in favor of disclosure to minimize the risk of liability.
The measure is like another good idea and that is to tell others what you would like to be told.
Kay Wilson-Bolton is the owner of CENTURY 21 Buena Vista with offices in Santa Paula and Ventura. She can be reached at 805.340.5025 or at www.readysetkay.com, She is also a Chaplain for the Santa Paula Fire Department.