By Roy J. Jimenez, Esq.
Introduction
Assembly Bill No. 968 (AB-968), codified as California Civil Code Section 1102.6h, took e
ffect on July 1, 2024, marking a significant shift in real estate transactions, particularly for residential flippers. This legislation mandates comprehensive disclosure of repairs and renovations by sellers who have flipped properties within 18 months of acquisition. The law aims to ensure transparency and protect buyers from undisclosed property conditions.
Key Provisions of Civil Code 1102.6h
The code requires sellers of single-family residential properties to disclose various modifications and repairs made since acquiring the property. This includes room additions, structural modifications, and other alterations. Sellers are also required to provide the names of contractors involved and copies of any related permits. If permits are unavailable, the seller must guide the buyer on how to obtain them from the relevant authorities.
Impact on Residential Flippers
For residential flippers, the new law introduces additional due diligence and documentation responsibilities. Flippers must meticulously track and report all property changes, including minor repairs, and ensure that all work is properly permitted and recorded. This adds a layer of complexity to the flipping process, potentially affecting both the speed and profitability of these transactions.
Legal Implications and Compliance
Non-compliance with the new law could lead to legal disputes and financial penalties. Buyers who discover undisclosed work after the purchase may have grounds for legal action, including rescission of the sale or claims for damages. Therefore, it is crucial for sellers to fully understand and adhere to these requirements.
The Importance of Legal Counsel
Navigating the intricacies of Civil Code 1102.6h requires specialized legal knowledge. Real estate litigation attorneys provide invaluable guidance in ensuring compliance and mitigating legal risks. They assist in preparing the required disclosures, verifying permit statuses, and addressing any disputes that arise. Consulting with an attorney before any issues emerge is key to avoiding litigation.
Conclusion
Civil Code Section 1102.6h significantly impacts the dynamics of residential flipping by enforcing stringent disclosure requirements. Flippers need to proactively integrate these obligations into their business models to avoid legal pitfalls. Contact information for each contractor working on a flip should be maintained, and the specific improvements to each property should be separately logged. The updated Transfer Disclosure Statement should be used if utilizing California Association of Realtors forms. When in doubt, disclose. Given the broad implications for those in the real estate, construction, and rental industries, seeking legal counsel is not just advisable but essential for staying compliant and safeguarding against potential legal challenges.
For more information and guidance on compliance, please contact Roy Jimenez at rjimenez@tldlaw.com.
