May 2nd, 2016 at 6:44 am
Answer: The buyer should generally wait before cancelling. If the buyer knows for a fact that the seller will agree to mutually cancel before the delivery of disclosures, he can go ahead and cancel now. However, that’s not something the buyer usually knows about, in which case, the buyer should wait. The TDS law specifically states that the buyer has “three days after delivery in person” to cancel (or 5 days after delivery by mail). The buyer also has a similar 3-day cancellation right for some of the other statutory disclosures, including the Natural Hazard Disclosure (NHD), Mello-Roos taxes, and 1915 Bond Act assessments.
What you are essentially asking is whether the buyer has an absolute right to cancel under the TDS and other statutory laws. The law does not say for certain one way or the other, but the answer is likely to be “no.” When a buyer has already entered into a purchase agreement with the seller, they owe each other a duty to act in good faith and deal fairly. Cancelling under the 3-day right to rescind before receipt of the TDS could potentially be construed as acting in bad faith. Even after receipt of the TDS, cancelling could still be construed as acting in bad faith if, for example, the TDS discloses nothing of significance to the buyer. Of course, whether the TDS discloses something significant to the buyer is often difficult for a seller to ascertain. But consider the other statutory laws. Assume that a disclosure states that the property is not located in any of the flood, fire, or earthquake hazard zones under the NHD law, or that the home is not in a Mello-Roos or 1915 Bond Act district. If a buyer nevertheless elects to exercise a 3-day right to cancel upon receipt of these “good news” disclosures, a seller may be able to successfully argue that the buyer has acted in bad faith.
-Thank you to Fred Coleman for suggesting this week’s legal tip.
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