When you purchase a home, the seller is required to complete a Seller Disclosure Statement, also referred to as a Form 17, disclosing known problems with the house or condominium unit. However, this disclosure only speaks to the individual property. If your soon-to-be new home is part of a homeowners’ association or condominium owners’ association, you are also purchasing a share of the association-owned property and will be responsible for your share of costs associated with maintaining and/or repairing that common area.
As part of the sales transaction for the purchase of a condominium unit, a condominium association will provide a Resale Certificate which discloses some financial information, but not the physical state of the association-owned property. The Resale Certificate will tell you if the association has voted for the levying of special assessments for a project, but not necessarily whether any special assessments have been levied against the unit. The Resale Certificate won’t necessarily include information regarding any pending special assessments related to upcoming expenses that are still being considered or researched. When it comes to pending expenses, Resale Certificates are only required to provide a statement of any anticipated repair or replacement cost in excess of five percent (5%) of the annual budget of the association that has been approved by the Board of Directors. What if the condominium needs new siding? Is the Association owned park in need of new playground equipment? A bit of forethought and investigation can help you make an informed decision on the right home.
To learn the state of the Association and property, be sure your Purchase and Sale Agreement includes a Form22D, Optional Clauses, and that you mark and date Box 8 regarding the Homeowners’ Association Review Period. Form 22D, Box 8 requires the Seller to provide you with:
- Association rules and regulations;
- Association bylaws and covenants, conditions, and restrictions;
- Association meeting minutes from the prior two (2) years;
- Association Board of Directors meeting minutes from the prior six (6) months; and
- Association financial statements from the prior two (2) years
These documents can provide you with important information you will need to make an informed decision as a home buyer. A planned construction project should be in the meeting minutes. Financial statements should include the amount in a Reserve Account, set aside for future expenses, such as a new roof on a condominium or road repairs in a homeowners association.
After marking Box 8, enter the number of days in the blanks. If you leave it blank, the default provision gives the Seller ten (10) days to provide you with all of the documents, but only gives you (5) days to review them and make any demands or to withdraw. You can enter more different time frames, such as seven (7) days for the Seller to provide the documents and seven (7) days for your review.
This is a somewhat newer requirement, so sellers and their real estate agents may not be used to complying with it. Let your real estate agent know when you are making an offer that you will want to receive and review these documents. Then be sure to follow up if you do not receive them on time.
Purchasing a home in an association adds some additional complexity to the sales process. Ambiguous terms such as pending special assessments should not be ignored. If you communicate with your real estate professional and have your purchase and sale documents reviewed by an attorney familiar with the common pitfalls, you can greatly reduce the risk of an expensive surprise and enjoy homeownership with a little more peace of mind.