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From a risk management perspective perhaps the most critical aspect of any transaction is the preparation and delivery of the Transfer Disclosure Statement ("TDS"). Through the TDS sellers and agents disclose defects and other issues relating to the property.
Many issues concerning the TDS warrant careful review and discussion. One is the question of when to have the TDS completed. The three most common options are 1) at the time of the listing; 2) at the time the buyer and seller enter into the purchase agreement; or, 3) after the parties have entered into a binding purchase agreement.
A buyer can cancel the transaction three days after personal delivery or five days after mail delivery of the TDS. To avoid the potential loss of the sale sellers and agents should deliver the TDS as soon as possible. The preferred course of action is to have the TDS completed by the sellers and listing agents prior to the time the offer is accepted. The question then, is at what point before the offer is accepted should the TDS be completed?
The question left unanswered by this case is whether the result would have been different if the broker was a buyer's agent, or a dual agent. The court's reliance on the absence of a fiduciary duty between the broker and the plaintiff-buyer suggests that had the broker owed a fiduciary duty to the buyer, that duty could include a duty to investigate the accuracy of a seller's representations about the seller's power to convey title. 469 S.E.2d 627 (S.C.App. 1996).
Preparing the TDS at the time of the acceptance has benefits and risks. On the one hand, the buyer is given a TDS prepared with the most current information. On the other hand, during the offer/counter-offer process, it is very difficult for either the sellers or their agent to properly focus on all of the TDS' issues. As a result, completion of the TDS at that time is likely to lead to incomplete and inadequate disclosures.
To avoid this potential consequence, the best option is to have the TDS completed before an offer is actually received. Since there is no certainty as to when an offer will be received, it makes sense to have the TDS completed at the time of the listing. One significant risk may arise though. If the property does not sell for a period of time after the listing, then it is possible the sellers and listing agent will be left with a TDS with outdated information. There have been many claims by plaintiff buyers in which they argued the sellers and agents were negligent for failing to provide a current TDS.
The recommended procedure is to provide your sellers with a copy of the TDS at the time of the listing. Explain to them the solemnity of the document, along with the importance of completing it fully and honestly.
The sellers should be counseled to take a day or two to walk through the property and carefully complete their portion of the TDS. If necessary the sellers should use additional paper to dictate the breadth of their disclosures. Further, they should be told to disclose everything, even if they question it. Finally, sellers should be instructed not to sign or date the TDS at that time.
Soon after, you should return to the property and carefully inspect it for your disclosures. In conducting the inspection and making the disclosures, heed the advice given above to the sellers. If you see any defects not disclosed by the sellers, then ask them whether they would like to include those defects in their disclosure. Finally, when the TDS has been completed by both, neither you nor the sellers should sign it. The appropriate person in your office should review it and then place it in your transaction file.
When an offer is finally received, you should review with the sellers, the TDS, which was completed but not signed or dated. You and the sellers should then make any modifications or additions needed. Once both have done this, the TDS can be signed and dated.
By following these procedures, you and the sellers will be able to provide a TDS that was prepared thoroughly - at the time of the listing. The TDS will be finalized, signed and dated at the time of the offer. The buyers receiving the TDS are assured that it is current and complete. And the sellers and listing agent are protected from a future claim regarding the accuracy and timeliness of the information in the TDS. Finally, any delays in providing the TDS to the buyers and the associated risks of losing the transaction, are eliminated.
Copyright 2000 - Spile & Siegal, L.L.P.; Phone 818-784-6899; Fax 818-784-0176; E-mail: counsel@spile-siegal.com; Website: http://www.spile-siegal.com |
