Report Title:

Real Estate; Mandatory Seller Disclosures

 

Description:

Clarifies the type of information required to be included in a seller's disclosure statement. Requires absentee property owners to make certain disclosures in the sale of residential real property.

 

THE SENATE

S.B. NO.

169

TWENTY-FIRST LEGISLATURE, 2001

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

relating to real estate.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Section 467-14, Hawaii Revised Statutes, is amended to read as follows:

"§467-14 Revocation, suspension, and fine. In addition to any other actions authorized by law, the commission may revoke any license issued under this chapter, suspend the right of the licensee to use the license, fine any person holding a license, registration, or certificate issued under this chapter, or terminate any registration or certificate issued under this chapter, for any cause authorized by law, including but not limited to the following:

(1) Making any misrepresentation concerning any real estate transaction;

(2) Making any false promises concerning any real estate transaction of a character likely to mislead another;

(3) Pursuing a continued and flagrant course of misrepresentation, or making of false promises through advertising or otherwise;

(4) Without first having obtained the written consent to do so of both parties involved in any real estate transaction, acting for both the parties in connection with the transaction, or collecting or attempting to collect commissions or other compensation for the licensee's services from both of the parties;

(5) When the licensee, being a real estate salesperson, accepts any commission or other compensation for the performance of any of the acts enumerated in the definition set forth in section 467-1 of real estate salesperson from any person other than the real estate salesperson's employer or the real estate broker with whom the real estate salesperson associates or, being a real estate broker or salesperson, compensates one not licensed under this chapter to perform any such act;

(6) When the licensee, being a real estate salesperson, acts or attempts to act as a real estate broker or represents, or attempts to represent, any real estate broker other than the real estate salesperson's employer or the real estate broker with whom the real estate salesperson is associated;

(7) Failing, within a reasonable time, to account for any moneys belonging to others which may be in the possession or under the control of the licensee;

(8) Any other conduct constituting fraudulent or dishonest dealings;

(9) When the licensee, being a partnership, permits any member of the partnership who does not hold a real estate broker's license to actively participate in the real estate brokerage business thereof or permits any employee thereof who does not hold a real estate salesperson's license to act as a real estate salesperson therefor;

(10) When the licensee, being a corporation, permits any officer or employee of the corporation who does not hold a real estate broker's license to have the direct management of the real estate brokerage business thereof or permits any officer or employee thereof who does not hold a real estate salesperson's license to act as a real estate salesperson therefor;

(11) When the licensee, being a real estate salesperson, fails to file with the commission a written statement setting forth the name of the real estate broker by whom the licensee is employed or with whom the licensee is associated;

(12) When the licensee fails to obtain on the contract between the parties to the real estate transaction confirmation of who the real estate broker represents;

(13) Violating this chapter; chapter 484, 514A, 514E, or 515; section 516-71; or the rules adopted pursuant thereto;

(14) Splitting fees with or otherwise compensating others not licensed hereunder for referring business; provided that notwithstanding paragraph (5), a real estate broker may pay a commission to:

(A) A licensed real estate broker of another state, territory, or possession of the United States if that real estate broker does not conduct in this State any of the negotiations for which a commission is paid;

(B) A real estate broker lawfully engaged in real estate brokerage activity under the laws of a foreign country if that real estate broker does not conduct in this State any of the negotiations for which a commission is paid; or

(C) A travel agency that in the course of business as a travel agency or sales representative, arranges for compensation the rental of transient vacation rental; provided that for purposes of this paragraph "travel agency" means any person, which for compensation or other consideration, acts or attempts to act as an intermediary between a person seeking to purchase travel services and any person seeking to sell travel services, including an air or ocean carrier;

(15) Commingling the money or other property of the licensee's principal with the licensee's own;

(16) Converting other people's moneys to the licensee's own use;

(17) The licensee is adjudicated insane or incompetent;

(18) Failing to ascertain and disclose all material facts concerning every property for which the licensee accepts the agency, so that the licensee may fulfill the licensee's obligation to avoid error, misrepresentation, or concealment of material facts; provided that for the purposes of this paragraph, the fact that an occupant has AIDS or AIDS Related Complex (ARC) or has been tested for HIV (human immunodeficiency virus) infection shall not be considered a material fact; and provided further that with regard to listings involving residential real property governed by chapter 508D, the licensee shall be deemed to be in compliance with this section if in compliance with chapter 508D;

(19) When the licensee obtains or causes to be obtained, directly or indirectly, any licensing examination or licensing examination question for the purpose of disseminating the information to future takers of the examination for the benefit or gain of the licensee; or

(20) Failure to maintain a reputation for or record of competency, honesty, truthfulness, financial integrity, and fair dealing.

Disciplinary action may be taken by the commission whether the licensee is acting as a real estate broker, or real estate salesperson, or on the licensee's own behalf."

SECTION 2. Section 508D-1, Hawaii Revised Statutes, is amended by amending the definitions of "disclosure statement" and "material fact" to read:

""Disclosure statement" means a written statement prepared by the seller or at the seller's direction, that purports to fully and accurately disclose all material facts relating to the residential real property being offered for sale that:

(1) Are within the knowledge or control of the seller;

[(2) Are disclosed by documents recorded in the bureau of conveyances; or

(3)] (2) Can be observed from visible, accessible areas[.]; or

(3) Are required to be disclosed under section 508D-15.

Except for the disclosures required under section 508D-15, no seller or seller's agent shall have any duty to examine any public records when preparing a disclosure statement.

"Material fact" means any fact, defect, or condition, past or present, [which materially] specific to the property, that directly, substantially, and adversely affects the value of the residential real property being offered for sale. The disclosure statement shall not be construed as a substitute for any expert inspection, professional advice, or warranty that the buyer may wish to obtain."

SECTION 3. Section 508D-3, Hawaii Revised Statutes, is amended to read as follows:

"§508D-3 Exemptions. This chapter shall not apply to the following sales of residential real property:

(1) Sale to a co-owner;

(2) Sale to a spouse, parent, or child of the seller;

(3) Sale by devise, descent, or court order;

(4) Sale by operation of law, including, but not limited to, any transfer by foreclosure, bankruptcy, or partition, or any transfer to a seller's creditor incident to a deed (or assignment) in lieu of foreclosure, workout, or the settlement or partial settlement of any preexisting obligation of a seller owed a creditor and any later sale of residential real property by such creditor;

(5) Sale by a lessor to a lessee resulting from conversion of leased land to fee simple;

(6) Initial sale of new residential real property pursuant to chapter 484 under a current public offering statement or chapter 484 exemption;

[(7) Sale where the seller is an absentee owner who has complied with the requirements of section 508D-10;

(8)] (7) Sales of condominium apartments accompanied by delivery of an unexpired public report; or

[(9)] (8) Sale of time share interests as defined under chapter 514E."

SECTION 4. Section 508D-6, Hawaii Revised Statutes, is amended to read as follows:

"§508D-6 Later discovered inaccurate information. Prior to closing the real estate purchase contract, a buyer who receives a disclosure statement that fails to disclose a material fact or contains an inaccurate assertion [which materially] that directly, substantially, and adversely affects the value of the residential real property, and who was not aware of the foregoing failure or inaccuracy, may elect in writing to rescind the real estate purchase contract within fifteen calendar days of the earlier to occur of [(1) the discovery thereof, or (2) the]:

(1) The discovery of the failure or inaccuracy; or

(2) The receipt of an amended disclosure statement correcting the [foregoing] failure or inaccuracy, in the manner provided by section 508D-5(b) or (c).

The buyer's right to rescind the real estate purchase contract under this section shall not apply if the sale of the residential real property has been recorded; provided that the buyer may pursue all additional remedies provided by law."

SECTION 5. Section 508D-7, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:

"(c) If the seller's agent is or becomes aware of any material facts inconsistent with or contradictory to the disclosure statement or the inspection report of a third party[,] provided by the seller, the seller's agent shall disclose these facts to the seller, the buyer, and [their agents.] the buyer's agent. Nothing in this chapter precludes all other obligations of the seller's or the buyer's agent under Hawaii law."

SECTION 6. Section 508D-9, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:

"(a) A seller or the seller's agent shall prepare the disclosure statement in good faith and with due care. A buyer shall have no cause of action against a seller or seller's agent for, arising out of, or relating to the providing of a disclosure statement when the disclosure statement is prepared in good faith and with due care. For purposes of this section, "in good faith and with due care" includes honesty in fact in the investigation, research, and preparation of the disclosure statement and may include information on the following:

(1) Facts based on only the seller's personal knowledge;

(2) Facts provided to the seller by governmental agencies and departments;

(3) Existing reports prepared for the seller by third-party consultants, including without limitation a:

(A) Licensed engineer;

(B) Land surveyor;

(C) Geologist;

(D) Wood-destroying insect control expert; or

(E) Contractor, or other home inspection expert;

dealing with matters within the scope of the professional's license or expertise for the purpose of the disclosure statement;

[(4) An approximation of the information, when sufficient information regarding material facts is not available to the seller, and the seller or seller's agent makes reasonable efforts to ascertain the information; provided the approximation is:

(A) Clearly identified as an approximation;

(B) Reasonable;

(C) Based on the best information available to the seller or seller's agent;

(D) Not used for the purpose of circumventing or evading the requirements of this chapter; and

(5)] and

(4) Facts provided to the seller by a managing agent of a homeowner's association, including without limitation, a condominium, cooperative, or community association.

Notwithstanding this subsection, a seller or seller's agent shall be under no obligation to engage the services of any person in the investigation, research, or preparation of the disclosure statement. The failure to engage the services of any such person for this purpose shall not be deemed an absence of good faith or due care by the seller or the seller's agent in the investigation, research, or preparation of the disclosure statement."

SECTION 7. Sections 508D-10 and 508D-11, Hawaii Revised Statutes, are amended to read as follows:

"§508D-10 Absentee owners and disclosure. A seller who has not lived in the residential real property for at least one-hundred-eighty days prior to the date of receiving a real estate purchase contract [may notify the buyer in writing that the seller] and who does not have the requisite personal knowledge to make accurate disclosures about the residential real property[, or provide a statement subject to section 508D-9(a)(4). Thereafter the buyer may elect to:

(1) Substitute an inspection report by a home inspector, licensed contractor, or licensed appraiser covering the same matters as would have been included in a disclosure statement at the buyer's expense; or

(2) Provide the seller written notification that the buyer waives the applicability of this chapter.] shall:

(1) Notify the buyer in writing that the seller has not lived in the residential real property for at least one-hundred-eighty days prior to the date of receiving the real estate contract; and

(2) Provide a disclosure statement as to those material facts of which the seller has the requisite personal knowledge.

Any buyer receiving a disclosure statement prepared pursuant to this section shall be deemed to be on notice that if the buyer desires information in addition to what is contained in the disclosure statement, it is the responsibility of the buyer to obtain the information at the buyer's expense. Nothing herein shall relieve the seller of the seller's obligations under sections 508D-13 to 508D-15.

§508D-11 Disclosure form. In addition to the other information required by this chapter, the form for the disclosure statement shall include the following:

(1) A notice to the buyer that the buyer may wish to obtain professional advice and inspections of the residential real property;

(2) A notice to the buyer that the information contained in the disclosure statement is the representation of the seller and not the representation of the seller's agent (except as to those representations, if any, specifically identified as being made by the seller's agent[);] and not by the seller); and

(3) A notice of the buyer's rescission rights pursuant to this chapter."

SECTION 8. Sections 508D-13 and 508D-14, Hawaii Revised Statutes, are amended to read as follows:

"§508D-13 Later material facts. Information in a disclosure statement that has not been disclosed or becomes inaccurate regarding a material fact as a result of an act, agreement, or occurrence (or otherwise becomes known to seller) after the statement is provided to the buyer does not violate this chapter. However, if such information [materially] directly, substantially, and adversely affects the value of the residential real property, the seller shall provide an amended disclosure statement to the buyer disclosing the material fact within ten calendar days after the seller's discovery of such information if the seller discovers such information prior to the recorded sale of the residential real property, and in any event, no later than twelve noon of the last business day prior to the recorded sale of the real property. The buyer shall have fifteen calendar days to examine the amended disclosure statement and, if the buyer was not already aware of such information, [may] to rescind the real estate purchase contract in accordance with section [508D-5.] 508D-5(b) or (c). The buyer's right to rescind the real estate purchase contract under this section shall not apply if the sale of the residential real property has been recorded; provided that the buyer may pursue all additional remedies provided by law.

§508D-14 Additional disclosure requirements. The requirements of this chapter are in addition to all other disclosure obligations of the seller required by law relating to the sale of residential real property."

SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 10. This Act shall take effect upon its approval.

INTRODUCED BY:

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