Ch10. Real Estate Disclosure Law — Comprehensive Review & Key Exam Points

US Real Estate Disclosure System Overview

┌──────────────────┬────────────────────┬────────────────────┐
│ Category         │ Rights Records     │ Physical Records   │
├──────────────────┼────────────────────┼────────────────────┤
│ Governing law    │ State recording    │ State survey /     │
│                  │ statutes           │ zoning laws        │
│ Public records   │ Deed / mortgage    │ Assessor records / │
│                  │ records            │ plat maps          │
│ Office           │ County Recorder    │ County Assessor /  │
│                  │ / Register         │ Planning Dept      │
│ Content          │ Ownership, liens,  │ Parcel, zoning,    │
│                  │ easements          │ lot size, APN      │
└──────────────────┴────────────────────┴────────────────────┘

Residential vs. Commercial Lease Comparison

┌────────────────┬─────────────────────┬─────────────────────┐
│ Category       │ Residential Lease   │ Commercial Lease    │
├────────────────┼─────────────────────┼─────────────────────┤
│ Tenant         │ Move-in +           │ Occupancy +         │
│ protections    │ habitability duty   │ negotiated terms    │
│ Discrimination │ Fair Housing Act    │ No federal law      │
│ Renewal rights │ State law varies    │ Contractual only    │
│ Rent limits    │ Rent control (some  │ Contract-based      │
│                │ cities/states)      │ (rare regulation)   │
│ Deposit limit  │ 1–2 months (state   │ Negotiated          │
│                │ statutory cap)      │ (no federal cap)    │
│ Eviction       │ Just-cause in some  │ Contractual or      │
│                │ states              │ default-based       │
└────────────────┴─────────────────────┴─────────────────────┘

Property Valuation System Summary

Assessed value:
County assessor / by tax locus date (varies by state)
Used for: property tax calculation

Market value appraisal:
Licensed appraiser / USPAP standards
Used for: mortgage lending, sales, litigation

Sales price reporting:
Most states: required disclosure of sale price
1099-S reporting: required for most real property sales
(filed with IRS by settlement agent)

Assessment appeal:
All jurisdictions: 30–90 days from assessment notice
Evidence: comparable sales, independent appraisal

Property tax proration:
Handled at closing via escrow
Prorated between buyer and seller based on ownership days

Commonly Missed Exam Points

① Constructive notice = recording (not actual knowledge)
   → Recording a deed creates notice to the entire world
   → Buyer who fails to search title cannot claim ignorance

② Bona Fide Purchaser (BFP) protection:
   → BFP who pays value and records wins against
     prior unrecorded interests
   → Race-notice states: first to record WITH knowledge
     wins; race states: first to record wins, period

③ TRID 3-day rule = business days, not calendar days
   → Three business days before closing for CD delivery
   → Not three calendar days

④ FIRPTA withholding = buyer's obligation
   → Buyer (not seller) is responsible for withholding
     and remitting 15% to the IRS
   → Failure = buyer's personal liability

⑤ Fair Housing = 7 federal protected classes
   → Disability and familial status added in 1988
   → States add additional protected classes

⑥ Security deposit = state-specific rules
   → Limits, return deadlines, itemization requirements
     all vary by state
   → One month typical; California = 2 months max

⑦ RESPA = federally related mortgage transactions
   → Does not apply to all-cash purchases
   → Applies to 1–4 family residential transactions

⑧ Appraisal independence = Dodd-Frank requirement
   → Lender cannot communicate desired value to appraiser
   → AMC required for federally regulated loans

⑨ Lease survives sale ("sale does not break lease")
   → New owner is bound by existing valid leases
   → Tenant does not lose rights when property changes hands

⑩ Assessed value ≠ market value
   → Many states cap assessed value increases
   → New buyer typically reassessed to purchase price

Title Record = County Recorder ★★★★★ : All deeds, mortgages, and easements are filed at the County Recorder’s office. Title search = searching these records. Memory hook: Recorder = public title database

TRID + RESPA = Closing Disclosure ★★★★★ : The Closing Disclosure under TRID/RESPA must be delivered 3 business days before closing. Review it carefully before signing. Memory hook: CD = 3 business days before close

BFP Protection = Recording Matters ★★★★★ : Recording your deed promptly after closing protects against prior unrecorded claims in most US recording statute states. Memory hook: Record your deed = protect your ownership

Practice Quiz (Comprehensive)

Q. What title-related documents should a buyer review before purchasing a condominium unit?

The title commitment / preliminary title report: discloses all recorded liens, easements, and encumbrances. The HOA resale disclosure package: includes CC&Rs, bylaws, financial statements, pending litigation, and special assessment notices. The Closing Disclosure: confirms all costs including title insurance premiums. Buyers should verify that all seller liens will be paid off at closing (shown on the CD) and that no undisclosed encumbrances appear in the title commitment.

Q. Why is lien priority important when purchasing a property with an existing tenant?

Lien priority determines payment order in foreclosure. If a senior lien (recorded first) forecloses, junior interests — including some leases recorded after the senior lien — may be extinguished. Buyers should always review the title commitment to identify all recorded interests and their recording dates. A tenant whose lease was recorded after the purchase-money deed of trust may lose their tenancy if the property goes into foreclosure; conversely, a lease recorded before the deed of trust generally survives foreclosure in most states.