Should (can) an association require signed document from buyer before releasing dues certification?

This is a discussion question, not a specific problem. One of the major problems I've noticed over the years is the failure of buyers' to read the association documents, and then to claim ignorance when they violate some bylaw or rule, which inevitably results in an unhappy owner and conflict within the community. Only a few states have detailed disclosure requirements for resales and associations in those states that don't face the problem that the association has no relationship with a buyer, only the seller. In fact, I've had attorney's tell me that if an association were to provide information to a potential buyer (without a direct request of the seller/owner) that caused him or her to back out of a sale, the association could face a lawsuit for interference with the sale. Yet it is in the best interest of the association to have a knowledgable buyer.

In general, the only time there is contact between the association (or agent) and the buyer (or their agent) is near closing when the buyer has to obtain a statement from the association that all assessments or fines are paid up-to-date for the unit or home they are purchasing. This may be called a "Statement of paid dues and assessments", a "resale certification" or some other name. It may be prepared by an officer of the association, the manager or management company, or by a third party vendor, such as CondoCerts or GetDocsNow. Very often there is a charge to the buyer for obtaining this document.

My question is, could or should the association create a document that the purchaser has to sign before this assessment document is released? The document would simply state that the purchser understands that he/she/they are buying a unit/condo in a Homeowner/Property/Community/Condominium association. That the association is governed by Covenants/Conditions/Restrictions/Bylaws/Rules, among which are included (list of basic restrictions) and that the owner, by taking title to the property agrees to abide by those rules, or if the property is to be rented to another party, to subject that party to those rules. That they have received a copy of all of the documents (include list of documents) and have read them. And then have it signed by the purchaser.

This document could be placed on the association's or management company's web site for easy access, or could be e-mailed or faxed to the buyer or his agent. The third party vendors could probably place a checkbox on their application form which indicates "that by checking the box you acknowledge that the buyer has received and read etc, and is indicating acceptance by checking the box".

A number of questions arise: Can an association hold the resale certificate hostage (and possibly hold up or delay the closing) until that document is signed? If the buyer then backs out of the sale, does this create a liability situation for the association? Would an amendment to the association documents, requiring this for all future resales, remove the liability? Would it really make any difference regarding the buyer's knowledge of the association and its restrictions? What are the other pro's and con's?

I'm trying to find a way around the lack of state disclosure laws and so this is a trial balloon. Your thoughts and comments would be greatly appreciated.

Joe

For your convenience I've copied the Arizona Statute that deal with your discussion:

33-1806. Resale of units; information required; definition

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 purchaser 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.

Thanks for the posts. I'm familiar with the Arizona law, Virginia has one that's similar. Unfortunately, the majority of states don't have the kind of detailed disclosure requirements found in those states. In Michigan, for example, the disclosure requirement exists for the original sale of a condominium only, nothing for HOA's/POA's or any re-sales. I'm trying to find a way that an association can "artificially" create a relationship with the buyer, to ensure that all documents get into their hands, and that they acknowledge the receipt, and with a separately signed document, specifically agree to abide by them. I like that statement in the AZ law that requires their signature. I know the CC&R's are public records, but budgets, financial statements, minutes, and even some rules aren't, or at least aren't with the recorded papers.

Maybe the way to ask it is if you think you can put the substance of the AZ law into an amendment for the CC&R's in those states that don't have disclosure laws, and would it be legal and enforceable?

Joe

Colorado, requires a disclosure statement which is provided by the Seller and is signed by the Buyer at closing. For the HOAs we manage a copy is required to be mailed back for the files.

We never provide HOA information directly to a potential Buyer because this violates Colorado real estate contracts (read line 166 of the exclusive Agreements for the Buyers Agent and Sellers Agent). We provide considerable HOA information, most of which is required under the Colorado Common Interest Ownership Act, to the Seller or upon request of the Seller it is provided to their Agent. Their Agent provides it to the Buyers Agent who then gives it to the potential Buyer. We will only email this information PDF format or allow the Owner to download these documents from a secure HOA web site. We will not use third party vendor, such as CondoCerts or GetDocsNow nor allow Agents access to the web site. This information and how it is provided is CRITICAL since the association could liable if the sale is not consumated. The potential Buyer may terminate the sales contract based on information in these documents.

This is an excellent example of why EVERY MANAGEMENT COMPANY SHOULD HAVE A REAL ESTATE BROKER ON THEIR STAFF. DARCO's CEO has been a real estate broker for 25 years.

Joseph, in Colorado we do require the buyers signature on the disclosure form. From an operational standpoint, it is not practical to receive the signed disclosure statement prior to providing the title company a certificate of status of assessment. We request it in the status letter and get the signed disclosure form from the title company when they mail us a copy of the deed.

Upon signing closing documents at the title company the Buyer does agree (whether they realize it or not) to abide via the covenants portion of the Declaration of Covenants, Conditions, and Restrictions. We make the Seller the responsible party to provide all required and other requested HOA documents. There is a Rule and Regulation on Home Sales which covers the policies and procedures required.