What Are Sellers California HOA Disclosure Obligations?
The best way to keep a real estate business flowing, even in what some may say is traditionally a slow time of year, the fourth quarter, also known a the holiday season, is to use that time to connect with business partners.
I recently took Jacquie Berry, owner of CA HOA Document Review to lunch. Earlier this year Jacquie, pictured below, was a guest speaker at an ActiveRain Lunch & Learn Meet-up.
In California, when a seller sells a property that has a homeowner's association ("HOA"), the seller has a legal obligation to disclosure to prospective purchasers. This duty is memorialized in Civil Code §4525 - Disclosure to Prospective Purchaser.
This typically happens when the listing agent lists a home for sale that has a homeowner's association. For the most part, this involves a condominium community, however, there are many non-condominium communities that have an HOA and the seller has a legal obligation to disclosure when selling the property.
Many management companies refer to the Request for HOA Documents as a "sales package." Most management companies do not fully comply with the legal requirements pertaining to the sellers legal disclosure duties. I base that statement on my 13 years experience in real estate. I have yet to see a fully compliant disclosure package.
Most people (buyers, sellers and agents), don't know what the legal HOA disclosure requirements are. That is why it is so important to have an HOA document review. Believe me when I say Jacquie Berry knows the laws. She can cite them backwards, forwards, inside out, upside down, and sideways.
Jacquie and her team review the HOA documents provided by an association's management company to ensure compliance with the laws.
In all of my experience in selling condominiums, I've never represented a buyer who would not agree to pay for an HOA document review. That is how important these reviews are. Buyers need to make their purchase with eyes wide open. The only way to know if HOA documents are in compliance is to have an expert review them. The review is way above my pay grade notwithstanding the fact that it is not among my duties as a listing or selling agent. My duty is to advise and recommend!
Many listing agents, and sellers, feel that by merely making the request to the management company, and paying the fee, that meets the sellers legal obligation to disclosure. That belief is simply is untrue.
Most associations and management companies submit the documents directly to the title/escrow company. The documents are then made available to the selling agents. Keep in mind it is the sellers duty to disclose. The association is not a party to the transaction. The parties to the transaction are the buyer and seller. The association does not have a duty to make disclosures to a buyer.
If Boards were smart, and I have yet to meet one that is, they would require the management company to include a disclaimer with the documents, disclaiming that the documents, provided at the request of the seller, may not be complete.
There is a presumption that Boards know the laws; management companies know the laws; and both the Board and the management company are in compliance. Buying a property with an HOA based upon this hugely false presumption may well get a buyer far more than what they bargained for.
Many buyers have sued sellers after the closing for failing to disclose certain things regarding the association. A good example is when a buyer gets a special assessment shortly after moving in. Jacquie Berry has seen court ordered special assessments as high as $42,000.00 per door!
Imagine being a buyer who gets a $42,000.00 special assessment just weeks or months after closing.
No one can truly prevent someone from suing them. But, if a buyer sues a seller after the close because the property was special assessed, as in the example above, the best defense a seller has is if the seller also provides an HOA Document Review to the prospective purchaser prior to the close of escrow.
Civil Code §4525 - Disclosure to Prospective Purchaser
By providing prospective purchasers with an HOA Document Review sellers meet the legal obligation to disclosure because any and all deficiencies are outlined in the CA HOA Document Review. By disclosing the deficiencies in compliance and outlining any and all financial deficits to the prospective purchaser, sellers met the legal disclosure requirement.
It then falls upon the buyer to review and make an informed decision not only about their purchase of the physical property but on the health of the association as well.
Sellers want to consider the cost of the CA HOA Document Review like the cost of an insurance policy. Sellers cannot protect against a buyer suing, but for the small fee of an CA HOA Document Review, if a seller is sued when they have provided the review, according to attorneys who defend those lawsuits, sellers stand a strong probability of prevailing as well as being awarded attorneys fees and costs.
If you are selling a San Jose home, or any property in California that has an Homeowner's Association, be sure to hire an agent that knows the laws and advises you accordingly.
The same applies to buying a San Jose home. If your agent does not recommend an HOA Document Review, based upon the laws and facts noted above, that agent, in my professional opinion, may well have failed at their duty to use utmost care in representing you.
Business is never slow for me. I create the time to associate with top professionals in the real estate industry. I build relationships that help me build a better business which ultimately positions me to serve my clients in ways that many real estate agents don't.
If you would like to learn more about a CA HOA Document Review or buying and selling a property with a homeowner's association, I'd be happy to buy you a cup of coffee and discuss the process in detail.
To fill that order simply call 1-408-972-1822.
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