Since the last blog I did is about selling property and a President who is a realtor, I want to do a blog to introduce something related to think about. When selling a home in a residential common interest development (a homeowner’s association or condominium association) people get burned for sticking their “hands” where they don’t belong. And it seems this is an area where a realtor on the board could make some serious gaffs, trying to help. If any director or the manager overreaches to try and facilitate a sale, it could get the HOA sued. And of the board president is an agent in the sale, I cannot begin to give sufficient warnings in a simple blog to avoid creating liability. So let’s hope that is not the case. Let’s just assume the directors would be willing to talk to a buyer.
Let’s sort out the responsibilities of the parties.
The Seller of the Property: The law regulating sales in HOAs (not to be confused with real estate law which has its own set of required disclosures) obligates THE SELLER to provide the buyer with certain information: (See the part of the wording of the actual law below – “separate interest” is the legal word for the unit or lot of the individual seller, “prospective purchaser” means “buyer” but I assume you get that.)
CIVIL CODE SECTION 4525-4545
- (a) The owner of a separate interest shall provide the following documents to a prospective purchaser of the separate interest, as soon as practicable before the transfer of title or the execution of a real property sales contract, …:”
The law goes on to list the things the seller must provide and they include a lot of information that the seller gets in an annual packet from the board each year (or should get). Like I said in the last blog, you can look up the full law at www.ca.gov -navigate to the California laws.
So its clear – the seller is responsible to give buyer a bunch of things.
THE HOMEOWNERS ASSOCIATION
The SELLER can ask the HOA for the things the seller has to give … Here’s the section on this legal requirement.
“Civil Code Section 4530. (a) (1) Upon written request, the association shall, within 10 days of the mailing or delivery of the request, provide the owner of a separate interest, or any other recipient authorized by the owner, with a copy of the requested documents specified in Section 4525.”
If the Association gives any disclosures out TO ANY OTHER PERSONS except an escrow officer, in response to an escrow demand, the Association can be sued by ANY OF THOSE PERSONS!! The reason the escrow officer is okay because the escrow person is actually an agent of the seller in the sales transaction.
So let’s see why the actions of the board or management can open the door to liability exposure without realizing it. When a condo or Lot in an HOA is sold, the seller is the only party that can sue the Association because of a disclosure problem (or lack thereof). But if the board or management provides any information to any prospective purchaser, realtor or lender and that kills the sale, now the seller can sue the association and/or management company for interfering with the sale.
And likewise, if the Board or management communicates directly to the buyer or his or her realtor or lender, now the board and the HOA can become a target for any of these new people to whom information is given. They can sue if something goes south with the sale or if the buyer is unhappy after moving in. Before the board or management gave out information to these extra parties, their only legal cause of action would be against the seller, not the HOA. The seller would be the only person that could sue the HOA.
Here is the phrase I recommend you tattoo on your forehead if you are bugged for information in a sale situation by anyone other than the seller.
“If you want information – make your request to the seller. The seller can come to us. We can only release information to the seller, upon the request of seller, or to an escrow officer who is authorized to receive information on behalf of the seller.”
If you do anything other than that, you are exposing the HOA up to being sued by a buyer, a buyer’s RE agent, the sellers RE agent, a lender, yes, and even the SELLER. The seller does have a legal right to sue the Association for failure to disclose information the HOA is required to provide but NONE OF THE OTHER PARTIES HAVE A VIABLE CASE AGAINST THE ASSOCIATION FOR NONDISCLOSURE, unless you break the barrier between the HOA and the public who may be involved in any RE transaction. And there is a specific CALIFORNIA case on point. Kovich v. Del Mar HOA.
I really don’t like to talk about this person suing that one or lawsuits at all. But real estate law is one of the areas most fraught with litigation. And coming right out and saying who can sue who is the only graphic way I can back up this simple statement: “Don’t put your hands where they don’t belong, or you can get burned.
Lots of people want to be helpful and it is not wrong to want to make prospective buyers feel like they are treated well. And there is misinformation out there on the web. It is not easy to separate the good stuff from the chaff. The majority of people just do not really understand why it is NOT good advice to tell a seller to give the buyer the manager’s telephone number as is suggested in a couple articles I saw in the internet. If the manager communicates with the buyer he or she may be exposing the HOA to legal liability that is otherwise not there. On the other hand, if he or she puts up a roadblock the new buyer or buyer’s realtor will be turned off, and complain to the seller, and then the seller will become the complainer.