On September 22, 2023, Governor Kathy Hochul signed legislation (A.1967/S.5400) amending the Property Condition Disclosure Act (“PCDA”), which effectively eliminates a seller’s option to provide a residential homebuyer with a $500 credit in lieu of a Property Condition Disclosure Statement (“PCDS”). The amendment further requires sellers to disclose property information regarding flood risk, flood history and flood insurance.  This consequential shift is consistent with Gov. Hochul’s implementation of her comprehensive resiliency plan to protect New Yorkers from extreme weather. The amendment goes into effect on March 20, 2024.

This bill goes a long way towards helping give homebuyers the information they need to make informed decisions about one of the biggest financial investments of their lives — their home.

Joel Scata, Natural Resources Defense Council Attorney for Water Initiatives

Elimination of “Opt-Out” Provision

The New York legislature enacted the PCDA to supplement the information provided by professional inspections and tests and searches of the public records conducted by residential homebuyers (New York Sponsors Memorandum, 2001 Ch. 456). The PCDA was also a response to adherence seen in New York’s case law to the doctrine of “caveat emptor” or “buyer beware,” which has long permitted a residential seller to remain silent as to most matters that are not actively concealed by the seller.  Consequently, buyers ended up with the burden of thoroughly inspecting the premises, searching public records and asking sellers the “right” questions about the property.  Despite the introduction of the PCDA, sellers were given the opportunity to “opt out” of providing buyers with a PCDS, if they were willing to pay the price – $500. Unsurprisingly, the $500 credit to the purchaser became the standard, and not the PCDA.

Section 465 of the Real Property Law (“RPL”) titled “Remedy” previously stated that “. . .(1) a seller who fails to deliver a [PCDS] shall give the buyer, on transfer of title, a credit of $500; (2) anyone who fills out a disclosure form or fails to fill out a revised disclosure form shall only be liable for a willful failure to do so and shall be liable in the amount of actual damages suffered by a buyer as a result of a violation of this article.”

In support of amending the PCDA, the legislature explained that the Natural Resources Defense Council (“NRDC”) currently gives New York’s flood risk disclosure law a failing grade, resulting in large part from the minimal fee a seller pays if he/she does not provide a buyer with the PCDS.  The legislature also noted that New York is the only state that provides for the “opt-out” $500 credit under the law.  Effectively deciding that a $500 penalty is an insufficient substitute for providing critical information to a homebuyer, the legislature steered further away from caveat emptor and homed in on the buyer’s “right to know” and other purchaser protections.

While subsection (2) remains in Section 465, the amendment deletes subsection (1), and thereby, eliminates the $500 credit in lieu of providing a PCDS.  Section 467 of the RPL, which is repealed by this amendment, has instead been added to Section 465, providing that “nothing contained in this article shall be construed as limiting any existing legal cause of action or remedy at law, in statute or in equity.”  Now, sellers must provide the PCDS or risk being held liable for the failure to do so (New York Sponsors Memorandum, 2023 S.B. 5400).

Flood Information Disclosure

The cornerstone of the amendment to the PCDA – the addition of flood disclosure questions – requires sellers to disclose a variety of information regarding flood insurance, flood risk and prior incidents of flooding.  The amended PCDA statute also now encourages buyers to check public records concerning the property with respect to FEMA’s current Flood Insurance Rate Maps and Elevation Certificates, evidencing the legislature’s continuous concerns about stronger and more frequent storms.  It also provides guidance to buyers and explains the intention of various items in the PCDS.

The following questions have been added to the PCDS to address flooding and potential weather hazards.  For any questions to which a seller answers “yes,” the seller must explain.  Items marked “Note:” are comments within the PCDS regarding the immediately preceding question.

• Is any or all of the property located in a FEMA designated floodplain?

• Is any or all of the property located wholly or partially in the special flood hazard area (“SFHA”; “100-Year Floodplain”) according to the FEMA’s current Flood Insurance Rate Maps for your area?

• Is the property subject to any requirement under federal law to obtain and maintain flood insurance on the property?
  • Note: Homes in the special flood hazard area, also known as high-risk flood zones, on FEMA’s Flood Insurance Rate Maps with mortgages from federally regulated or insured lenders are required to obtain and maintain flood insurance.  Even when not required, FEMA encourages homeowners in high risk, moderate risk and low risk flood zones to purchase flood insurance that covers the structure(s) and the personal property within the structure(s).  Also note that homes in coastal areas may be subject to increased risk of flooding over time due to projected sea level rise and increased extreme storms caused by climate change which may not be reflected in current Flood Insurance Rate Maps.

• Have you ever received assistance, or are you aware of any previous owners receiving assistance, from the FEMA, the U.S. Small Business Administration (“SBA”), or any other federal disaster flood assistance for flood damage to the property?
  • Note: For properties that have received federal disaster assistance, the requirement to obtain flood insurance passes down to all future owners.  Failure to obtain and maintain flood insurance can result in an individual being ineligible for future assistance.

• Is there flood insurance on the property? (If yes, attach a copy of the policy.)
  • Note: A standard homeowner’s insurance policy typically does not cover flood damage.  You are encouraged to examine your policy to determine whether you are covered.

• Is there a FEMA Elevation Certificate available for the property? (If yes, attach a copy of the certificate.)
  • Note: An Elevation Certificate is a FEMA form, completed by a licensed surveyor or engineer.  The form provides critical information about the flood risk of the property and is used by flood insurance providers under the National Flood Insurance Program (“NFIP”) to help determine the appropriate flood insurance rating for the property.  A buyer may be able to use the Elevation Certificate from a previous owner for their flood insurance policy.

• Have you ever filed a claim for flood damage to the property with any insurance provider, including the NFIP?

• Has the structure(s) ever experienced any water penetration or damage due to seepage or a natural flood event, such as from heavy rainfall, coastal storm surge, tidal inundation or river overflow?

Takeaway

With increasing extreme weather conditions impacting New York residents, we must recognize the measures that governmental agencies are implementing to protect New Yorkers and their homes.  Most immediately, sellers must be advised that, as of March 20, 2024, they are required to provide a PCDS, which will undeniably impact future residential real estate transactions and ultimately, the decision of whether to purchase a particular home.

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