Whether you’re looking to sell your house or find a new home, it’s often a stressful feat that can sometimes result in the small details becoming overlooked. When buying or selling in a homeowners’ association, there are added obligations or requirements that must be fulfilled. This article will help you navigate the HOA homebuying or selling process.
Why Disclosure is Essential
If you are selling a home located within an HOA, you must be transparent and forthcoming with information pertaining to that HOA. Once you’ve accepted a buyer’s offer, you must provide the buyer with important documents and other information about the homeowners’ association.
You need to know that you should have your documentation professionally prepared, understand how to handle HOA fees at closing, and respect the buyer’s right to review the association’s covenants, codes, and restrictions (CC&Rs) as well as the HOA’s financial history.
For example, HOA documents need to be disclosed for the following reasons:
- Some homeowners owe past due amounts to the association. If you’re selling in an HOA and you owe money to the association, selling your home does not release you from this personal liability. However, the buyer has the right to know if there is unpaid debt owed to the HOA because they could become liable for that debt if it’s not paid at time of closing.
- The buyer, as the new homeowner, needs to know how much the association’s assessments are and when/how frequently they are due. This will enable them to ascertain if they can really afford to live in the HOA.
- Because every homeowners’ association is governed and there are certain restrictions and guidelines to follow, the potential buyer needs to understand the HOA’s governing documents fully to ensure that they can agree to and abide by them.
- The buyer has the right to know if the prospective HOA carries debt, has failed to manage the community properly, and/or if association funds have been misspent in the past. In essence, the buyer needs to know the financial shape that the association is in because this could greatly impact them in the future. When an HOA is struggling, the chances of increased monthly assessments, special assessments, etc. is likely, and this can really put a strain on homeowners.
Some homeowners’ associations abide by a resale inspection rule, which allows them to keep up to date with the covenants. If the HOA implements a resale inspection rule, the seller or their agent must alert the HOA when the property is being listed. An inspection of the property will be conducted to determine if there are any current violations that must be corrected before a sale can proceed. If those violations are not corrected prior to sale, the new homeowner may find themselves liable of a violation they weren’t even aware of!
As you can see, it’s crucial that the seller discloses the important information described above. However, this information needs to be presented in a professional manner, and this comes at a cost.
Who Pays for Documentation?
HOA disclosure documents are often lengthy (typically around 200-plus pages). The cost for preparing these documents is not cheap. If you’re selling your home in an HOA, expect to pay a few hundred dollars for a disclosure packet. Ask your real estate agent to help you obtain the proper disclosure documents, which will likely be prepared by a title company. It is not advisable that you try to pull this information yourself to save money. This practice could cause you future troubles if you end up obtaining incorrect, incomplete, or even outdated information.
What is Included in the Closing Documents?
If you’re selling your home in an HOA, the following documents need to be provided to the buyer:
If you’re buying a home in an HOA, do not assume that the seller is required to disclose all issues! This depends on the location and type of issue, so buyer beware! However, if intentional deception on the seller’s part can be proven, there is typically legal action that the buyer can take to void the contract.
For this reason, some states (such as Arizona) require a disclosure packet. As mentioned above, this packet contains the financial information of the association, along with the governing documents, statement of account, and certificate of insurance.
The disclosure statement should include information that is related to the property and any recorded liens on said property. Expect information on items such as:
- Lead-based paint, mold, and other health hazards
- Appliance, electrical, or HVAC malfunctions
- Fire hazards or weather damage
- Zoning disputes or property line information
- Termite issues
- Any death(s) that occurred on the property
- Unusual, permeating odors that linger
The fees for this disclosure packet are charged at the time of closing.
A resale package contains vital information for those purchasing a home in an HOA. Included in the resale package are a complete set of recorded documents that govern the association:
- resale certificate/TREC form
- balance sheet
- articles of incorporation
- insurance declaration page
- assessment schedule and amounts
- outstanding assessments
- code violations
- reserve report
- meeting minutes
For more information, check our article “Who Pays for Resale?.”
Statement of Account
A statement of account is intended to inform the title company of the monies to be collected at time of closing. The statement of account provides detailed closing costs and an account balances breakdown to be collected.
Due to privacy practices, parties other than the homeowner or the title company cannot order this document.
Lenders frequently require a questionnaire to be completed with information regarding the association. This questionnaire may be customized by the lender, or it may be a stock questionnaire available for purchase.
The questionnaire will include an association budget and balance sheet, along with the association’s certificate of insurance.
Some associations charge transfer fees when ownership changes. A transfer fee is typically paid by the buyer of the property at the time of closing. These fees are the same regardless of association or type of property.
For more information on these fees, take a look at our article on HOA Transfer Fees.
Your title company will send all documents needed to have the property ownership changed over to your name. They will include any payments that were collected at closing; this typically happens one to two weeks after the date of sale.
These documents allow the HOA management company to verify that the sale has taken place and process the change of ownership. To process a change of ownership, the management company will likely require one or more of the following documents:
- closing disclosure
- HUD statement/final settlement statement
- new deed
If the property being purchased is bank-owned as a result of foreclosure action, the bank-owned property packet will typically include the following documents:
- statement of account
- current unaudited financial documents
- articles of incorporation
- unit ledger
- insurance declaration page
How Long Does It Take to Receive the Disclosure Information?
You should not expect to receive these documents quickly. It will certainly take more than just a few days, so it’s important to plan ahead. Many HOA’s still do not provide for rush delivery, or even electronic delivery, prior to closing.
If the home is involved in a short sale, the escrow company will likely require the funds up front to avoid risk.
A Final Word for Those Purchasing a Home in an HOA
If you’re buying a home in an HOA, do as much research as you can on the prospective neighborhood. Follow these tips for a smooth and satisfactory process:
- Obtain the governing documents early on, and carefully review them. Make sure that you can live with the association’s rules and restrictions prior to purchasing your new home!
- Ask to see the HOA’s latest reserve study. This will give you a good indication of the state of the association and allow you to make an informed decision about any prospective upcoming repairs, special assessments, etc. By reviewing the reserve study, you’ll have a better understanding of how the HOA manages its property and finances, and what you can expect in the future.
- Ensure that you can comfortably afford the regular assessment fees. These fees are necessary to maintain the association (amenity upkeep, etc.). They will not being going away!
- Prepare to become involved in your new HOA! There are always plenty of opportunities to volunteer in your community. By serving in your association, you can make new friends, build relationships with board members, and help enhance your neighborhood!
There are multiple benefits to living in an HOA, so don’t let the process of purchasing scare you. Whether you’re the buyer or the seller of a home in an HOA, there are certain steps you can take to ensure a smooth transition. By knowing what to expect, and by carefully reviewing the association’s documents, you will be able to enjoy your new home purchase!