Form-of-the-week: Request for Homeowner Association Documents – Form 135

A buyer acquiring a unit in a residential common interest development (CID)  bargains for multi-family living restrictions and pooled operating costs unlike those experienced in the ownership of a self-managed, detached single family residence (SFR).

Ownership of a unit in a CID includes compulsory membership in the homeowners’ association (HOA). The HOA manages and operates the project, taking a position of obligations similar to a landlord in a like-type complex. In turn, the HOA needs revenue  to pay for these management and operating costs for community upkeep. To accomplish this, the HOA assesses each unit for its estimated pro rata share of costs. These costs are paid by the HOA members, i.e., the unit owners.

As an owner of a unit in the CID, use and operating restrictions are placed on most types of conduct, including:

• parking;
• care and maintenance of the unit; and
• use of the common area facilities.

When becoming an owner-member of an HOA, you strike an implicit bargain to conform your conduct to meet extensive use restrictions in exchange for every other owner-member doing the same.

The standards for individual conduct are found in various HOA documents governing the operations of the CID. These policies and documents, along with all property-related disclosures, are to be delivered to the prospective buyers as soon as practicable, meaning ASAP – after commencement of negotiations and before entering into a binding contract. [Calif. Civil Code §§2079 et seq.; Calif. Attorney General Opinion 01-406 (August 24, 2001)].

Due to the near instant availability of the HOA documents to seller’s agents, disclosure is mandated to occur when the prospective buyer asks for additional information on the unit. This is the point at which negotiations begin and disclosures are to be made – not in escrow after the price has been set without reviewing all the critical HOA information.

The role of the seller’s agent

Unless a seller’s agent is ignorant of their duties owed to prospective buyers and buyer’s agents, they know what CID information and HOA documents are needed to properly market and disclose property information, collectively called transparency.

HOA disclosure documents inform the buyer what use and operating restrictions they will be subject to and the recurring costs of the HOA assessments. Without knowledge of this information before making an offer to buy, the buyer has insufficient information to decide whether to buy the unit and on what terms. [See first tuesday Form 135]

Editor’s note – As a matter of prudent practice, buyers are to receive all property disclosures from the seller’s agent prior to determining a property’s value for submitting an offer to purchase. If disclosures are delayed beyond acceptance, as allowed for in California Association of Realtor (CAR) standard purchase agreements, this delayed disclosure gives the buyer the right to re-negotiate the price and terms, or cancel as some of their many remedies.

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Accordingly, it is at the listing stage that the seller’s agent needs to prepare the seller’s request for the HOA to deliver the CID documents concerning use restrictions and HOA management and finances. The request form signed by the seller grants the HOA authorization to supply the seller’s agent with the requested copies of the HOA documents.

Within ten days after the postmark on the mailing or hand delivery to the written request, the HOA is to either:

• mail physical copies of the requested documents to the seller’s agent;
• email digital copies of the documents to the seller’s agent and the seller; or
• inform the seller’s agent where the requested documents are available in a digital format online. [CC §§1368(a); see first tuesday Form 135]

The written request form itemizing the documents to be delivered to the seller’s agent includes the HOA’s:

• articles of incorporation;
• conditions, covenants and restrictions (CC&Rs);
• bylaws;
• operating rules;
• age restriction statement;
• operating budget or summary;
• assessment and reserve funding disclosure statement;
• CPA’s financial review;
• policy on assessment enforcement;
• insurance policy summary;
• policy on regular assessments which fund the operating budget to pay for the cost of maintaining the common areas;
• policy on special assessments which are levied to pay for the cost of repairs and replacements that exceed the amount anticipated and funded by the regular assessments;
• policy on emergency assessments;
• policy on other unpaid obligations of the seller;
• approved changes to assessments;
• settlement notice regarding common area defects;
• preliminary list of defects;
• notice(s) of violation;
• required statement of fees;
• minutes of the regular meetings of the board of directors conducted over the previous 12 months; and
• transfer fee.

A willful failure by the HOA management to timely deliver the requested documents subjects the HOA to a penalty of up to $500. [CC §§1368(b), 1368(d)]

The seller, and thus the seller’s agent, is obligated by statute to ensure the HOA documents are handed to prospective buyers as soon as practicable, prior to entering into a purchase agreement.

When disclosures are received before agreeing to buy, the buyer does not have a valid reason to later use this information to terminate the purchase agreement, or worse, to demand an adjustment in the price for reason of surprises in tardy disclosures. [CC §1368(a)]

However, once the seller lists the property, it becomes the seller’s agent’s obligation to deliver the HOA documents to prospective buyers – and do so no later than before the seller accepts an offer.

The HOA may charge a service fee equal to their reasonable cost to prepare and deliver the documents requested by the agent on the seller’s behalf. Any charge in connection with the change of ownership by the HOA is limited to the amount necessary to reimburse the HOA for its actual out-of-pocket cost incurred to change its internal records to reflect the new ownership of the unit. [CC §§1366.1, 1368(c)]

Transparency for the buyer

On the review of all readily available HOA documentation before making an offer, the property’s ownership fundamentals become transparent – the very purpose of disclosure laws. With HOA information in hand, the buyer and their agent are then able to determine:

• the price the buyer will pay for the property; and
• whether or not the buyer has the ability and desire to carry the cost of ownership after acquisition. [See first tuesday Form 135]