As a REALTOR®, you’re more than familiar with the stack of documents that accompany each transaction. You’ll find the Natural Hazards Disclosure Statement (NHDS) among that stack, but you may be unaware of some of the crucial details pertaining to it. When do you need one? Who needs to fill it out? What constitutes a hazard area? The following tips will help answer those questions and offer additional insights into the National Hazards Disclosure Act requirements you need to know.
1. When do you need an NHDS? Transactions of properties containing 1-4 dwelling units (also known as “residential 1-4”) generally require an NHDS. The buyer’s agent must also advise the buyer of their right to receive the NHDS in writing if the listing agent never delivers one.
2. When DON’T you need an NHDS? Some transactions are considered exempt from the above, including bankruptcy or foreclosure sales, transfers involving probate, and transfers between co-owners. But even if a property is considered exempt from the NHDS, disclosures of whether the property is in a hazard zone may still be required, so it’s a good idea to use the standard form regardless, to make sure you are well within state guidelines.
3. Are there any other transactions that do NOT require an NHDS? If the property is commercial, vacant land, or residential 5 plus, the form does not need to be filled out. But even though an NHDS may not be required on these properties, it is still necessary to disclose whether any such property is within a natural hazard zone.
4. Consider whether a third-party disclosure company will work for you. Using a disclosure company is not required, but some agents opt to use them because they handle all of the legwork and documentation duties. On non-exempt residential 1-4 transactions, the use of a disclosure company shields both the seller and the seller’s agent from liability for omissions or other errors that may have been made on the form. For these transactions, the law permits the agent to choose a third party disclosure company in good faith and rely on the information provided therein.
5. Check for insurance. For commercial, vacant land, or residential 5 plus, the good faith choice of a third party disclosure company alone does not necessarily provide the same shield against liability. So for these transactions especially, make sure the insurance they carry includes brokers as additional or secondary insureds.
6. Get familiar with the form. The Natural Hazards Disclosure Act requires California real estate sellers and brokers to include an NHDS on properties that lie within particular hazard areas. The form itself includes boxes to check, indicating whether a property lies in any of the hazard zones. These boxes are followed by a statement alerting the buyer that said hazard(s) may limit their ability to develop the property, obtain insurance, or get assistance after a disaster. Following is a place for buyers to sign, indicating their understanding.
7. Learn the “natural hazard” zones. The six natural hazard zones are: high fire severity, wildland fire, earthquake fault, seismic hazard, flood hazard, and dam failure inundation area (area of potential flooding after a dam failure). Once you are familiar with the six “natural hazard” zones, you’ll be better equipped to prepare the NHDS.
8. Let the seller do their part. If you decide not to use a third party disclosure company, the property owner is responsible for filling out the NHDS sections concerning two of the six natural hazard zones: the property’s location within a high fire severity zone or a wildland fire area. The agent should not fill out the portions of the form the seller is expected to complete, and the agent is not responsible for confirming the accuracy of the seller’s statements. However, it is important to make it clear that the seller’s statements are their own.
9. Know where to get the right information. If a third party disclosure company is not used, the agent must fill out the portions of the form pertaining to: earthquake fault, seismic hazard, flood hazard, and dam failure inundation area. If the seller or seller’s agent doesn’t have “actual knowledge” that the property is located in one of these hazard zones, information can be found here:
- Earthquake fault and seismic hazard zones: State Geologist. View maps at the Department of Conservation website or order bond copies of Official Maps of Seismic Hazard Zones via BPS Reproductive Service (415) 495-2773.
- Flood hazards: Federal Emergency Management Agent (FEMA). Call (800) 358-9616 or check the FEMA website for flood maps.
- Potential of flooding after dam failure: State Office of Emergency Services. Contact local county emergency services to ascertain if the property is within an area of potential flooding.
10. When in doubt, look it up. You can find a copy of the law by going to the California Legislative Information website. Click on the “California Law” link, followed by the “Civil Code” link. Choose the “Civil Code of the State of California” link. In the top right corner, select “CIV” from the drop down “Code” list, and enter 1103 into the “Section” box.
11. Keep a chart on hand for quick reference. Print or bookmark the C.A.R. chart describing each hazard, the responsible party for each disclosure, the appropriate agency for determining each hazard risk, and where to find additional information. To access the chart, click here and enter your C.A.R. username and password.
If you have any additional questions and would like to speak with a C.A.R. attorney, please feel free to call the C.A.R. Legal Hotline at 213-793-8282. Calls are free to all C.A.R. members.