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Subject: Handling Prospective Buyer's Request
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RogerB
(Colorado)

Posts:5067


06/23/2006 5:01 PM  
Currently I am dealing with a case where a prospective buyer approach the Architectural Committee to find out if they bought a house in the subdivision would they be able to build a privacy fence. Similar Architectural questions are becoming more and more frequent. Buyers often are not schooled on proper procedures by their buyer's agent and volunteer homeowners serving on the Architectural Committee often are not aware of proper procedures to follow. Therefore I have provided the following guidelines. Has anyone experienced this? If so, how have you handled it?

1) The HOA should have NO COMMUNICATION with a potential Buyer. Potential buyers are not an owner and may never be. With regards to documents required to be provide by the Colorado Common Interest Ownership Act, they are provided to the seller or the sellers broker and status letters are provided to the title companies upon request for a closing. From a legal standpoint, I believe communications with a prospective buyer will place those individuals, the ARC, and the Board in a precarious position.

2) When a potential buyer has questions these should be addressed to their real estate agent, who contacts the seller's agent and receives answers back for the seller's agent after they have conferred with the seller. If there is no buyer's agent then the buyer should go through the seller's agent; and if there is also no seller's agent the buyer deals directly with the seller. Real estate agents for the buyer and the seller should be knowledgeable of and follow these procedures; and should have advise their clients.

3) It is the responsibility of the seller to provide documents and answers to questions to a potential buyer through the above channels.

4) All Architectural requests must come from an owner. The Architectural Committee has no authority to approve a modification request from a non-owner. This can get tricky for the seller who has a potential buyer who needs to know if they buy will the Architectural Committee approve a modification they will want to do. One solution is for the owner to submit a Request To Modify Form explaining an answer is needed to provide information to a potential buyer on whether or not such a request would be approved.

5) If approval of a request would set a precedent the Architectural Committee must first get approval in writing from the Board of Directors.
BrianB
(California)

Posts:2820


06/23/2006 5:37 PM  
wow... at first reading Roger, i thought "How harsh! Just typical of a strict HOA to stiff a potential newcomer to the neighborhood...", but then I began to think about it, and see some wisdom in your words.

This issue really puts me on the fence: I believe the HOA should interact with potential owners before they become owners with problems (unrealistic expectations, etc.), but I also see the mandate we have to deal with owners, and not non-owners. open the door to dealing with outside folks, and we can get into a lot of serious trouble. What if we dispense poor advice? WHat if we agree to something that is later changed? Have we set precedent? Are we liable somehow? Very chilling thoughts.

On the other hand, trusting the owner to disclose fully everything, AND interpret the covenants could leave a new owner with a bad taste in their mouth, and start the HOA and them off adversarially.

I think you have some good ideas Roger. I would suggest a nice letter that clearly explains the reasons the HOA won't be dealing directly with the prosepective buyer. It can also include information on the HOA as a great place to live, and other propaganda showing how helpful we want to be, but explaining the process to the buyer so they understand. Basically, something more "we would like to help, but we can't do these things" rather than "See my lawer." Soft sell, honey traps more flies, etc..
RogerB
(Colorado)

Posts:5067


06/23/2006 9:52 PM  
Brian, it may seem harsh to someone who does not understand Colorado requirement and related legal responsibilities. These guidelines are not for a potential buyer, they are meant to keep Architectural Committee members and Board members out of court. The buyer's broker is responsible for explaining the first three procedures to the potential buyer - not the HOA. These are based on Colorado Real Estate Commission regulations. Also, Colorado statutes require all key HOA documents be provided to a prospective buyer. So the HOA does not depend on the seller to disclose information about the HOA. The HOA provides the seller these documents to provide to a prospective buyer.

All new owners are personally welcomed, provided a welcome package, and provided answers to their questions. Information about the community can be provided on a web site and is available through the real estate broker.
ValerieC
(North Carolina)

Posts:25


06/24/2006 9:55 AM  
We have not yet had a prospective owner approach us, so I am glad I know what to say when they do.
I am growing more and more concerned and annoyed, however, because new residents complain they didn't know about the CC&Rs upon moving in the the neighborhood. They are either lying or the real estate professionals are not doing their job on this issue. I have considered writing a letter to the local Board of Realtors reminding them of their responsibility in providing such documents. Is that out of line, out of my realm?
HaroldS
(Arizona)

Posts:906


06/24/2006 10:54 AM  
Check your state statues before writing to your real estate board. Arizona Revised Statues has a very explicit list of items required to be given to a prospective HOA buyer, but excludes the realtor from the legal responsibility of supplying those documents but requires the "member" to do that "within 10 days of a pending sale."
"For purposes of this section, unless the context otherwise requires, "member" means the seller of the unit title and excludes any real estate salesperson or real estate broker who is licensed under title 32, chapter 20 and who is acting as a salesperson or broker and also excludes a trustee of a deed of trust who is selling the property in a trustee's sale pursuant to chapter 6.1 of this title."
I agree, a good realtor would make sure a prospective buyer got all the documents required. But a realtor is not included in the remedy allowed a buyer if he is not given all the information required by statue. Harold
RogerB
(Colorado)

Posts:5067


06/24/2006 12:42 PM  
Harold, the same is true in Colorado. Specific HOA documents are required to be given by the seller to the buyer in advance and it is the responsibility of the seller to provide the documents. That is why the buyer is required to sign a seller's disclosure form at closing. Furthermore, DARCO requires a copy of that form to be sent back to the HOA for protection in case the buyer later claims they didn't get the documents and wants to sue the HOA.

In Colorado it is my understanding that real estate agreements for the seller and buyer require going through their real estate broker. If the buyer or seller bypasses their broker a wise broker terminates their agreement; because if it went to court the broker, not their client, could be held responsible and could lose their license.
WilliamT
(Arizona)

Posts:489


06/24/2006 2:12 PM  
Posted By HaroldS on 06/24/2006 10:54 AM

...Arizona Revised Statues has a very explicit list of items required to be given to a prospective HOA buyer, but excludes the realtor from the legal responsibility of supplying those documents but requires the "member" to do that "within 10 days of a pending sale...


Harold,

I'm glad you mentioned that statute. I went and re-read the statute, and the requirement for the member to give the papers is with fewer than fifty units.

Greater than fifty units requires the association to give the information within 10 days after receiving written notice of the pending sale and the name and address of the purchaser. We are more than 50 units so for us it would be the association's responsibility to provide the documents.

I doubt that many sellers are aware of this statute. When I bought my house here less than two years ago I received the documents from the title company after the closing. I was aware that we were a sub association under a master association, but I never saw the docs until they were enclosed with the closing docs from the escrow company.

I'll be checking with our board and MC to see how this is being handled presently. I'm hoping to get our board to approve a Community 123 web site and we could place that requirement in the public section of the site so that everyone will see it, and also through an announcement we can advise our homeowners of their responsibility to notify the MC when they sell their house.

Bill
LuciusD


Posts:0


06/24/2006 3:51 PM  
Posted By RogerB on 06/24/2006 12:42 PM

Harold, the same is true in Colorado. Specific HOA documents are required to be given by the seller to the buyer in advance and it is the responsibility of the seller to provide the documents. That is why the buyer is required to sign a seller's disclosure form at closing. Furthermore, DARCO requires a copy of that form to be sent back to the HOA for protection in case the buyer later claims they didn't get the documents and wants to sue the HOA.




Roger, I believe you a citing SB-05-100 (CRS 38-33.3-223 & 38-35.7-102).
But SB-06-089 repealed 38-33.3-223 and rewrote 38-35.7-102 removing several key paragraphs.
The way I read SB-089, the seller provides documents *only* upon request of the buyer and the buyer is no longer required to sign a recipt for the information. And there is nothing to send back to the Assn.
RogerB
(Colorado)

Posts:5067


06/24/2006 7:11 PM  
Lucius, I replied once before on this. Please send me your copy of SB06-89 which you are referencing. My copy only added to 38-33.3223 and deleted nothing. As far as the buyer signing a copy of the disclosure form I just received one today for an association.
LuciusD


Posts:0


06/25/2006 4:53 AM  
Roger, I've emailed the document along with comments.
I'd suggest other Colorado readers visit the following:
http://www.hoalegislate.com (and scroll down to "SB 100 & SB 89 Resources")

On your original question.... As you might suspect, I regard your "No Contact" guideline as overly formal and "fussy".

I do think any contact with the association should include the association president and not be with just a committee chair.

I agree an architectural "approval" can not be issued to a non-owner, but I see no reason a "letter of understanding" cannot be issued which states the anticipated or probable action the association would take in response to a particular request. I would probably ensure any written communication be approved by our attorney.

In a situation such as you describe (several years ago), the president (at that time) simply explained the deed restriction to privacy fences on the particular lot to both the seller and the (prospective)buyer and indicated there was no anticipation or committment to waive or change the restriction.
I think this was the right way to handle that case. --LD
GeraldT1


Posts:0


06/25/2006 6:43 AM  
RogerB - Your guidelines are premptive, and meant to protect the owners, the boards, the process. They are great!! I would however remove the first two sentences of 1). Start with a senstence to the effect that potential buyers are to seek information about the association only through their seller's agentor directly with the seller. Then sentence 3. In other words, I'd make it a little more warm and fuzzy. Reason is that an informed buyer will benefit the association. This owner approaching architectural committee direct is not appropriate but it is understandable. At least they know there are rules and regs. and are seeking the paramaters that will effect their quality of life. GeraldT1
WilliamT
(Arizona)

Posts:489


06/25/2006 11:32 AM  
I've taken Roger's excellent suggestions regarding not communicating with potential buyers and drafted a letter which can be placed on our web site, if we get one, and if the board approves the letter.

It deals directly with the question of who the buyer is to contact, but does not state specific examples, such as Architectural Committee.

It also states what the seller and association must do upon receiving notice of the sale.

I reprinted the Arizona state statute so the buyer can know exactly what the association should send.

Any comments are welcome.

Bill


BUYER INFORMATION

To potential homebuyers in the XYZ Community, we welcome you to the community and sincerely hope you
enjoy living here as much as we do.

The ByLaws, CC&R's, Articles of Incorporation and Rules and Regulations are all public information,
and for the convenience of our Members and potential buyers, we have placed them in the public area of this web site so anyone can review them.

The volunteer Board of Directors are required to serve only the Members (homeowners) of the community, therefore, for legal reasons cannot answer questions from non-members (potential home buyers).

If you have questions regarding the community that are not addressed on the web site, please ask your realtor, who will contact the seller realtor to get answers from the seller. The seller can then contact our Management Company to obtain the answers for you.

Upon the sale of a home in the community, Arizona statute requires specific duties of the seller and buyer.

For the convenience of both buyer and seller, we are reprinting the Arizona state law section 33-1806 below. The statute requires that when the sales contract is signed, the seller must provide a written notice to our Management Company of the sale along with your name and address. Within 10 days after receiving that information the Management Company, on behalf of the Association, is required to mail or deliver to you the following documents:

A. For planned communities with fewer than fifty units, a member shall mail or deliver to a purchaser within ten days after receipt of a written notice of a pending sale of the unit, and for planned communities with fifty or more units, the association shall mail or deliver to a urchaser within ten days after receipt of a written notice of a pending sale that contains the name and address of the purchaser, all of the following:

1. A copy of the bylaws and the rules of the association.
2. A copy of the declaration.
3. A dated statement containing:
(a) The telephone number and address of a principal contact for the association, which may be an association manager, an association management company, an officer of the association or any other person designated by the board of directors.
(b) The amount of the common regular assessment and the unpaid common regular assessment, special assessment or other assessment, fee or charge currently due and payable from the selling member.
(c) A statement as to whether a portion of the unit is covered by insurance maintained by the association.
(d) The total amount of money held by the association as reserves.
(e) If the statement is being furnished by the association, a statement as to whether the records of the association reflect any alterations or improvements to the unit that violate the declaration. The association is not obligated to provide information regarding alterations or improvements that occurred more than six years before the proposed sale. Nothing in this subdivision relieves the seller of a unit from the obligation to disclose alterations or improvements to the unit that violate the declaration, nor precludes the association from taking action against the purchaser of a unit for violations that are apparent at the time of purchase and that are not reflected in the association's records.
(f) If the statement is being furnished by the member, a statement as to whether the member has any knowledge of any alterations or Improvements to the unit that violate the declaration.
(g) A statement of case names and case numbers for pending litigation with respect to the unit filed by the association against the member or filed by the member against the association. The member shall not be required to disclose information concerning such pending litigation which would violate any applicable rule of
attorney-client privilege under Arizona law.
(h) A statement that provides:
"I hereby acknowledge that the declaration, bylaws and rules of the association constitute a contract
between the association and me (the purchaser). By signing this statement, I acknowledge that I have read and understand the association's contract with me (the purchaser). I also understand that as a matter of Arizona law, if I fail to pay my association assessments, the association may foreclose on my property."

The statement shall also include a signature line for the purchaser and shall be returned to the association within fourteen calendar days.
4. A copy of the current operating budget of the association.
5. A copy of the most recent annual financial report of the association. If the report is more than ten pages, the association may provide a summary of the report in lieu of the entire report.
6. A copy of the most recent reserve study of the association, if any.
B. A purchaser or seller who is damaged by the failure of the member or the association to disclose the information required by subsection A of this section may pursue all remedies at law or in equity against the member or the association, whichever failed to comply with subsection A of this section, including the recovery of
reasonable attorney fees.
C. The association may charge the member a reasonable fee to compensate the association for the costs incurred in the preparation of a statement furnished by the association pursuant to this section. The association shall make
available to any interested party the amount of any fee established from time to time by the association.
D. A sale in which a public report is issued pursuant to sections 32-2183 and 32-2197.02 or a sale pursuant to section 32-2181.02 is exempt from this section.
E. For purposes of this section, unless the context otherwise requires, "member" means the seller of the unit title and excludes any real estate salesperson or real estate broker who is licensed under title 32, chapter 20 and who is acting as a salesperson or broker and also excludes a trustee of a deed of trust who is selling the property in a
trustee's sale pursuant to chapter 6.1 of this title.
RogerB
(Colorado)

Posts:5067


06/25/2006 12:00 PM  
Lou, thank you for the correction on SB-89. Apparently my copy was not the final copy which got signed into law. ANYONE WHO WAS PROVIDED A COPY OF THE PRELIMINARY VERSION OF SB06-89 FROM ME CAN GO TO http://www.hoalegislate.com TO VIEW THE FINAL VERSION.

Lou, the reason the association should not provide a "letter of understanding" to a buyer is because it violates real estate regulations. Such a letter can be provided to a seller who can provide it through appropriate channels to the buyer.

Gerald, I agree the guidelines should be made more "warm and fuzzy". What I posted was a copy of an email which I had sent to an HOA after all 4 members of the ARC and 4 Board members had sent emails which were copied to a potential buyer. Therefore, strong language was deemed necessary for a "wakeup call"
LuciusD


Posts:0


06/25/2006 1:19 PM  
Roger, Good point. I agree such a letter should go through the seller. But out of curiousity, can you cite the real estate regulation? Is this a statute or simply a regulation applicable to licensed realtors? Nevertheless, I have and expect to continue to "talk to" any buyers that express an interest in conversation. I welcome the opportunity to explain governing documents. The risks have to be less than driving on the interstate.
RogerB
(Colorado)

Posts:5067


06/25/2006 2:35 PM  
Lou, below is a link to Colorado Real Estate forms LC50-04-05 Exclusive Right to Sell, and BC60-04-05 Exclusive Right to Buy. Look on about line 166 of each; it requires the buyer and seller to go through their Broker.

http://www.dora.state.co.us/real-estate/contracts/CONTRACTSII.htm
RogerB
(Colorado)

Posts:5067


06/25/2006 2:49 PM  
Lou, I think your attitude of wanting to help prospective buyers understand the HOA documents is admirable. BUT - what if after a conversation with you the propective buyer backs out of a contract. Then the seller asks their real estate agent to find out why. And the buyer's indicates it was because they didn't like something based on what you explained to them. You have placed yourself in the position of a potential law suit. That is why I emailed this HOA and posted the email on this Board. I am not a real estate agent and most of the homeowners serving on Boards, ARCs, and reading this thread aren't.

This example illustrates why I believe every MC shoud have a Real Estate Broker on their staff.
SwanB
(Washington)

Posts:199


06/26/2006 12:50 PM  
We have a realtor that we trust and any inquiries on properties within our HOA are sent to our realtor. He is up-to-date with our governing documents and Minimum Property Standards and sends a report on property values, etc. to our monthly Board meetings. When we have had common properties for sale or purchased member properties, this was the individual we used.
I imagine some of you would scoff at this relationship but it works for us.
SwanB
(Washington)

Posts:199


06/27/2006 5:48 AM  
For our state it is the title companies who are required to give the buyers the governing documents of the HOA they have purchased into.
When we receive a complaint from a new member about 'not knowing the rules' I direct them to their title company folder 'You know the big, thick one you received when you signed the closing papers?' Once they find it, their those darn governing documents they claim they never got are.
The title company agents I have worked with directly are good about pointing out the existence of the governing documents in the packet but people hear what they want to hear, like 'sign on the dotted line'...twelve times!
LisaS
(Illinois)

Posts:341


06/27/2006 1:26 PM  
I am a Board VP and a Realtor.

To my knowledge, in any state, buyers can request a copy of the CCr's, Bylaws, etc, as part of their sales contract and/or attorney review period. They are usually requested from the seller or their attorney depending on stage of the deal. They are then obtained via MC, seller, or copy of recorded document from Clerks office.

I am not an attorny, so I always advise any buyer that I am working that 'I would' request CCR's etc. prior to closing, and to READ them. It's pretty much too late to object to the rules after you buy your house (although our HOA is full of those people...)I also advise looking at financials. How many people have bought condos and suddenly found special assessments in their mail, or bankrupty?

I would never issue a 'letter of understanding' or any such document to any potential buyer or seller in a transaction as an HOA Board member. Buyer will 'rely on the facts' in their purchase. And as we all know, rules change, Board members change, attitudes change. It's a lawsuit waiting to happen as a reward for your good intentions.

Our CCR's and financials are available on our website for anyone to look at, and we encourage those who inquire to do so.
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