HOA requirements.

April 29,2024 | Posted By Flavia Brown in Real Estate

HOA and sellers’ legal requirements and suggestions when selling.

Condo and townhouse sellers should have the state-mandated disclosures (California Civil Code 1102) available to prospective buyers by the time a home goes on the market. At least the Transfer Disclosure Statement (TDS) should be completed (only by the owner). According to the most common California purchase agreement, the deadline for sellers to give the disclosures to the buyer is seven calendar days after acceptance and ratification of the offer. However, most buyers (offerors) don’t want to make an offer on a home and show their proof of funds until they know at least some of the physical condition of a home. For example, they don’t want to make an offer on a home that has large horizontal cracks in the foundation, or a home that was recently flooded. They would also like to see the HOA packet (CC&Rs, bylaws, and financial statement) and know whether or not the complex (Common Interest Development, or CID) is FHA-approved), or if a condo or townhouse is single-unit approved (“spot approved”).

Qs & As to better understand HOA legal requirements

(Source: California Association of Realtors (CAR) -- written by CAR attorneys):

Q1. What disclosures/documents should be given to a buyer in a resale of a unit in a common interest development?

A. The C.A.R. Sales Disclosure Chart for REALTORS® states the disclosures that need to be provided in a residential 1-4 transaction. All of these disclosures apply equally to the resale of a property in a common interest development. In addition, the following documents, if applicable, should also be delivered to the buyer:

1. A copy of all of the governing documents of the common interest development. If the association is not incorporated the documents shall include a statement in writing from an authorized representative of the association stating that fact. (Cal. Civ. Code § 4525)

2. A statement describing any restrictions in the governing documents limiting the occupancy, residency, or use of a separate interest on the basis of age, including a statement that the restriction is only enforceable to the extent permitted by Cal. Civil Code § 51.3. This is generally for HOAs of CIDs that meet the requirements to be senior housing facilities. Other types of age restrictions in CIDS are generally not enforceable. (Cal. Civ. Code § 4525)

3. A copy of the most recently distributed annual budget report (Cal. Civ. Code § 4525). The annual budget report includes among other information a summary of the association's reserves, a summary of the association's property, general liability, and earthquake and flood insurance policies, a summary of the reserve funding plan and a statement as to whether the association has any outstanding loans with an original term of more than one year. The full list of documents contained in the annual budget report can be found in Civil Code § 5300.

4. A written statement from an authorized representative of the association regarding the association's current regular and special assessments and fees. Also, the statement shall include any assessment and fees levied upon the seller and any monetary fines or penalties levied upon the seller's interest which are unpaid on the date of the statement. This statement shall in addition include information on late charges, interest and costs of collection which as of the date of the statement are or could be made a lien upon the seller's interest in the property.

5. A summary of any notice previously sent to the owner alleging any violations of the governing documents that remain unresolved at the time of request.

6. If there has been any litigation or dispute between the builder and the association, and no settlement agreement has been reached, a copy of the initial list of defects provided to each member as required by law including that a final determination as to whether that list is accurate and complete has not been made.

7. If there has been a settlement agreement between a builder and the association information required by law regarding the settlement agreement including among other items, a general description of the defects the association reasonably believes, as of the date of disclosure to the homeowner, will be corrected or replaced and other information regarding the defects claimed by the association. A full list of information to be provided can be found in Civil Code § 6100.

8. Any change in the association's current regular and special assessments and fees that have been approved by the board of directors but have not yet become due and payable.

9. If there are any provisions in the governing documents that prohibit the rental or leasing of any of the separate units including a description of the prohibition and how it applies.

10. If requested by the prospective buyer, a copy of the board-approved minutes of the board meetings, excluding executive session meetings, conducted over the past 12 months.

Q2. Does a homeowners' association have an obligation to provide the owner of a unit with the necessary documentation to give to the buyer?

A. Yes. Upon written request an association must within 10 days provide the owner of a separate interest or any other recipient authorized by the owner with a copy of the items listed in Question 5 (Cal. Civ. Code § 4530). When these documents are requested (such as by using C.A.R. form Homeowner Association Information Request, Form HOA-IR), the association must provide a written or electronic estimate of the fees that will be assessed for providing the documents, and this estimate must be made on a form specified by statute (C.A.R. standard form Homeowner Association Request for Required Statutory Documents and Charges, Form HOA-RS, meets this requirement). The fees (if any) may not exceed the association’s actual costs to procure, prepare, reproduce and deliver the requested information (Cal. Civ. Code § 4530). If an HOA maintains the HOA documents electronically, those documents must be made available to a requesting party with no additional fees for electronic delivery. (Cal. Civ. Code § 4530). If the homeowners’ association refuses to comply (i.e., “willful” violation), the Civil Code provides a civil penalty not to exceed $500, plus actual damages incurred by the buyer, plus reasonable attorney’s fees (Cal. Civ. Code § 4540).

Q3. If the seller makes a request for the disclosure items as stated above, may the HOA require the purchase of extra disclosures and services as a condition of delivering the required disclosures?

A. No. Delivery of the documents required by Cal. Civil Code § 4525 cannot be withheld for any reason nor subject to any condition except the payment of the allowable fee.

Q4. Can the HOA present a charge that combines charges for required disclosures with charges for extra disclosures and services?

A. No. Fees for any documents required under Cal. Civil Code 4525 must be distinguished from all other fees, fines, or assessments billed as part of the transfer or sales transaction. Moreover, AB 771 requires the HOA to provide the recipient of the disclosures with a statement on a prescribed form which clearly indicates the disclosures and the fee. C.A.R. form HOA-RS may be used to allow the HOA to comply with the law. To use this form the seller (or listing agent) should fill out the top portion of the form and deliver it to the HOA to request the required disclosures.

Q5. What fees may a managing agent for a homeowners’ association legally charge a new buyer for preparation and delivery of HOA documents?

A. The law could be interpreted to prohibit passing on a management fee beyond the actual costs of procuring, preparing, reproducing and delivering the HOA documents. The law currently states that an association may contract with any person or entity to "facilitate compliance" with the requirements, regarding document preparation and delivery. This may imply a managing agent hired by the homeowners' association is bound by the same restrictions as the homeowners' association in charging for preparation and delivery of requested documents. Cal. Civ. Code § 4530.

However, this has not been tested and there are associations continuing to charge more than seems reasonable based on the argument that the association's costs include the sometimes significant cost of the third party that prepares and delivers the documents. The argument would be that the cost that the management company charges is part of the actual costs of procuring and producing the documents. Previously, a court permitted a homeowners' association to charge inflated fees for HOA documents based on the cost that a managing agent charged for such services. (Berryman v. Merit Property Management, Inc. (App. 4 Dist. 2007) 62 Cal. Rptr. 3d 177).

Q6. What C.A.R. forms are used to request both required by law and contractually required disclosures from the HOA?

A. In California it is common for the escrow or title company to order the required (by law) and contractual disclosures. So often, the listing agent need not undertake this task. For those agents that are responsible for ordering these HOA documents directly from the HOA, there are three forms (which were renamed in December 2018) that may be used to request these disclosures:

The HOA Information Request form (HOA-IR)
Charges for Required HOA Documents (HOA-RS)
Charges for Other HOA Documents (HOA-RN)

These three forms should be provided to the HOA together. The reason they are separated is that the law requires that mandatory fees be separately itemized on a separate document with no additional fees for any non-legally required disclosures.

Q7. How many days after acceptance should the HOA Information Request form be given to the HOA?

A Three days. While most provisions of the C.A.R. purchase agreements allow for seven days in which the seller may provide disclosures to the buyer, the HOA documents must be requested from the HOA within three days.

Q8. What is the “Buyers Homeowners’ Association Advisory” (Form BHAA) and is it required to be given to the buyer?

A. This form is an optional form that may be provided to the buyer by either their own agent or the listing agent. It advises buyers of property subject to an HOA of the importance of a thorough review of HOA documents which will govern, affect and, in some cases, may limit their current and future use of the property.

The issues that it encompasses many of the most common issues that are likely to impact the buyer’s decision to buy and provide clear and practical advice. For example, regarding parking and storage, it states directly to the buyer, “You should determine for yourself whether the allotted parking space(s) are adequate to park your vehicle(s) in the assigned spaces by actually parking in those spaces.”

Disclosing prior reports and repairs is a legal requirement for all California residential property sellers and real estate agents.

While almost everyone is familiar with the standard rule of “when in doubt, disclose” there are still circumstances that can trip up an otherwise diligent agent. Sellers and agents each have an independent duty to disclose all material facts that affect the value and desirability of the property. While this rule may seem simple, mistakes are still made.

Here are some things to watch out for concerning disclosing prior reports and repairs:

Do previous defects have to be disclosed if they have already been repaired? Yes. Even if a problem or defect that existed in the past has since been repaired, this is still a material fact that must be disclosed. Problems can reoccur, and buyers should know what to look out for in the future. Furthermore, the Seller Property Questionnaire (C.A.R. Form SPQ) asks questions specifically about repairs and alterations made to the property. Paragraph 7 of the SPQ asks the seller to disclose “any alterations, modification, replacements, improvements, remodeling or material repairs on the Property” as well as any ongoing maintenance or if any portion of the property was painted within the past 12 months.

Do sellers and/or agents have to provide copies of inspection reports or other documents in their possession relating to the condition of the property? Yes, These documents are filled with material facts that must be disclosed to a buyer. Trying to parse the document and pick out the facts to be disclosed is much too risky, so the document itself should be provided to the buyer. Also, Paragraph 5 of the SPQ specifically asks sellers about any “reports, inspections, disclosures, warranties, maintenance recommendations, estimates, studies, surveys, or other documents ... pertaining to the condition or repair of the property” and instructs the seller to provide copies these documents in their possession to the buyer.

Does a disclosure have to be made no matter how long ago the repair took place or how old the document is? Yes. Sellers and agents should not try to determine whether something is too old or happened too long ago to still be considered material. If the seller has knowledge of the repair or still has a copy of a report, those things should be disclosed no matter how far back they go. Of course, the older a report or document is, the less useful it will be to a buyer. Buyer’s agents should note the dates of reports or other documents being provided and point out to the buyer if they are significantly out of date.

Do real estate licensees have to keep documents relating to the property? What about property owners? Yes. And no. Real estate licensees are required by the Department of Real Estate to maintain records pertaining to transactions for at least 3 years after a transaction closes. Therefore, if an agent helped a client buy a property and now is listing that property within a 3-year period, all documents relating to the property from the time of purchase would be expected to be in the possession of, and therefore disclosed by, that agent. Note that since the record retention requirement applies to the broker, even if a different agent in the same office is listing the property and the office has the file in their records, the relevant documents will still need to be disclosed. However, while many sellers may have held on to property reports, they have no legal obligation to do so.

Is a listing agent or seller who is in possession of an inspection report that was paid for and obtained by a previous buyer required to disclose it even if the report and contains language saying that the report may only be used by the person for whom the report was prepared? Yes. Many inspection reports contain language limiting their use to the person who paid for the inspection or describing the report as non-transferable. This language is there to protect the inspector and let third parties know they should not expect to have claims against the inspector for any reason. Such disclaimers do not make the report confidential, and once it is in the possession of a seller or listing agent it still must be disclosed to any subsequent buyers of the property.

To your success,

California Association of Realtors

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