When buyers receive their disclosures it is often a huge volume of documents and even more so if the buyer is purchasing a condominium, townhouse, or other property governed by a Homeowner’s Association (HOA). We are often engaged by Realtors and their clients to review these voluminous documents in a short amount of time. Not only do we review the Covenants, Conditions & Restrictions (CC&Rs) for our clients, but also other key documents from the HOA. We find that these three things are extremely informative for the buyer:
1. The Cover Sheet
When the seller lists the property, their listing agent will order a set of disclosure documents from the HOA’s property manager. The HOA disclosure package always has a cover sheet, which is required by law. [Former Civil Code Section 1368 (a), newly amended as Section 4525.]
What’s in the cover sheet? The cover sheet tells the buyer whether there are any pending assessments, and whether any “special assessments” are on the horizon. The regular monthly dues are usually considered an “assessment” and when a big expenditure has been voted on and approved by the HOA’s Board of Directors, that is a “special” assessment which could mean several thousands of dollars that the buyer has not budgeted in the purchase calculations.
The Davis Stirling Act requires the HOA disclosure package to include all the items enumerated in Civil Code Section §4525[i] before close of escrow, and the cover sheet must state the amount of the regular assesments, and any special assessments and fees, as well as any assessments (penalties and fines) related to the seller’s unit that remain unpaid.
2. The Newsletters
I always recommend that prospective buyers read the newsletters. Often those newsletters will contain information about prior events or future plans for the development, for example if the clubhouse is going to be renovated or if the parking structure had flooded. Often these are items that will not be disclosed because the seller does not think to disclose what is happening elsewhere in the complex and the future event may be taking place more than 12 months away so it is not listed as a “special” assessment in the cover sheet.
3. The Minutes
The minutes are short, but often very informative as they discuss repairs, budgeting and homeowner complaints. If the HOA is planning to obtain bids to re-pave all the common areas, or to replace landscaping, etc., that is going to be noted in the minutes as the HOA board will vote on those matters.
A prospective buyer is often making a purchase decision in a very short amount of time based off of the HOA disclosures and the other reports (pest report, home inspection report, etc.). The CC&R’s are not the only documents that can assist a purchaser in determining what is happening with the property. The cover sheet, newsletters, and HOA minutes can inform the buyer whether to anticipate big financial obligations in the future, as well as other maintenance issues with the property.
As always, give us a call at (650) 327-2900 if you think you have a real estate matter and need legal representation or visit us on the web at www.BrewerFirm.com.
[i] “Civil Code §4525. Disclosure to Prospective Purchaser.
(a) The owner of a separate interest shall provide the following documents to a prospective purchaser of the separate interest, as soon as practicable before the transfer of title or the execution of a real property sales contract, as defined in Section 2985:
(1) A copy of all governing documents. If the association is not incorporated, this shall include a statement in writing from an authorized representative of the association that the association is not incorporated.
(2) If there is a restriction in the governing documents limiting the occupancy, residency, or use of a separate interest on the basis of age in a manner different from that provided in Section 51.3, a statement that the restriction is only enforceable to the extent permitted by Section 51.3 and a statement specifying the applicable provisions of Section 51.3.
(3) A copy of the most recent documents distributed pursuant to Article 7 (commencing with Section 5300) of Chapter 6.
(4) A true statement in writing obtained from an authorized representative of the association as to the amount of the association’s current regular and special assessments and fees, any assessments levied upon the owner’s interest in the common interest development that are unpaid on the date of the statement, and any monetary fines or penalties levied upon the owner’s interest and unpaid on the date of the statement. The statement obtained from an authorized representative shall also include true information on late charges, interest, and costs of collection which, as of the date of the statement, are or may be made a lien upon the owner’s interest in a common interest development pursuant to Article 2 (commencing with Section 5650) of Chapter 8.
(5) A copy or a summary of any notice previously sent to the owner pursuant to Section 5855 that sets forth any alleged violation of the governing documents that remains unresolved at the time of the request. The notice shall not be deemed a waiver of the association’s right to enforce the governing documents against the owner or the prospective purchaser of the separate interest with respect to any violation. This paragraph shall not be construed to require an association to inspect an owner’s separate interest.
(6) A copy of the initial list of defects provided to each member pursuant to Section 6000, unless the association and the builder subsequently enter into a settlement agreement or otherwise resolve the matter and the association complies with Section 6100. Disclosure of the initial list of defects pursuant to this paragraph does not waive any privilege attached to the document. The initial list of defects shall also include a statement that a final determination as to whether the list of defects is accurate and complete has not been made.
(7) A copy of the latest information provided for in Section 6100.
(8) Any change in the association’s current regular and special assessments and fees which have been approved by the board, but have not become due and payable as of the date disclosure is provided pursuant to this subdivision.
(9) If there is a provision in the governing documents that prohibits the rental or leasing of any of the separate interests in the common interest development to a renter, lessee, or tenant, a statement describing the prohibition.
(10) If requested by the prospective purchaser, a copy of the minutes of board meetings, excluding meetings held in executive session, conducted over the previous 12 months, that were approved by the board…”