HOA SALES TRANSACTIONS CAN BE PRECARIOUS-THERE ARE MANY “SHARKS” IN THE WATER
HOA sales transactions can be precarious when the parties that are doing the talking do not know what they’re talking about. I did a blog about a month ago with a “beware slant” telling you about why if you are on an association board you need to be careful about who you choose to communicate with. Buyers and sellers generally want someone else to do the work for them, so they rely heavily on their real estate agents. They expect their agents to communicate with the boards. However, a board that has been the least bit educated on the subject knows one thing, if nothing else . Do not start a conversation with anyone other than an owner with regard to a sale. I will say it again, because it is sooooooooooooo important: Do not start a conversation with anyone other than an owner with regard to a sale!
Why is this sooooooooooooo important?
Because an HOA has such a big target on it when it comes to litigation. Have you ever heard the adage that attorneys tend to go after the parties with “deep pockets”? HOAs have “deep pockets” because of the power to assess all owners in the development. Don’t expand the pool of sharks because the waters can get very dangerous. (Translation, do not create additional legal relationships with parties other than owners by making disclosures, promises, statements or representations that may come back to bite you.)
So in my last blog, I told you what to do and what not to do. In this blog, I will show you what can happen.
I got a call from a small Association whose documents I helped update and restate a couple of years ago. The president said that a unit in the development was in the process of being sold, and markers were going up in the street with signs on them indicating work was going to be done in the area. The board did not put up the signs. I believe the city put the signs up. This development is one of the cities and I know there are a number of them, because the city I live in (Benicia, California) has the same requirement, that sewer laterals be replaced when a home sells. This is the California municipalities’ way of getting resident support to upgrade sewer systems, many of which are outdated, old, and faulty. They just don’t have the money to do the work so they have approved resolutions that pass on the cost of the laterals to the owners of the property when they sell the property. The cost from what I have seen so far in reviewing these situations is generally around $6,000 to $7000 or so.
The Board President started calling people and found out that the city required the upgrade of the laterals, that the property had actually transferred to the new owner, that the seller and the agents involved all assumed that the HOA was responsible to do the work, and thus the buyer was so informed. The seller left money in escrow for a bid that one of the real estate agents procured for the work to make sure it would get done. All parties apparently believed the Association would happily pay the money when the work was done to reimburse the owner. Even the City rep suggested the lateral was the HOA responsibility. Not so.
The CC&Rs for this condominium association are very clear on who maintains what thanks to going through the update and restatement process with me a few years ago, and contain clear language indicating that owners are responsible for water and sewer facilities starting at the point of separate service to their homes. In this particular case, the point of separation or the separate service starts at the connection of the lateral to the main that runs down the center of the HOA street. Additionally, the developer had set up a condominium association that requires owners to maintain their own units and buildings and gives the Association the power to charge any owner an individual assessment if the HOA has to do work that the owner refuses to do that was an owner obligation. And this thematic was carried into the updated documents.
The developer specifically said no reserves would be collected for things like the roofs, siding, paint, etc. And reference to this is stated in the updated documents. This is unusual for a condominium association, yes, but not unheard of. And in fact, many condo associations are transferring obligations like replacement of windows and doors and exclusive use areas to owners when they update documents (1) because they have a shortage in reserves and they want to look better “on paper” and/or (2) because they want to re-allocate the responsibilities to save money and spread the costs in what they consider a more palpable way. These changes have to be approved by the owners as amendments to the original documents, if it is a change. And this is why it is critically important for the real estate community to understand the CC&Rs are important! They should not be making assumptions about the responsibilities.
One of the real estate agents took charge of the situation, got the bid (in their name) for the work and making many mis-assumptions, has opened a real can of worms.
When the HOA Board found out what was going on, and notified the buyer and seller (not knowing at that point which one was the actual owner) of the CC&R requirements and also a requirement to seek architectural approval all H broke loose because everyone was proceeding under the wrong impression. Their impression was that they could all do whatever they want to because the city was mandating the change out of the laterals, and that no approval was needed, and the HOA would reimburse for whatever work was done.
The real estate agent running the show sent a letter to HOA Board the telling them that under real estate law, in a condominium, the HOA is responsible to replace the lateral sewer laterals. There was no mention of reference to what the CC&Rs say.
The fact is that the CC&Rs control over the law when it comes to maintenance obligations, if they have clear language about responsibilities.
The board was informed by me to communicate only with the owner, once they found out who it was, and not the agents. Naturally the owner would prefer the HOA talk to the agent because that’s the way sellers and buyers are.
The Board President told me that he was so glad they went through the governing document update even though it was hard, and he could not imagine what they would have done if proceeding under their old documents because of the lack of clarity . In this case the Board can get the fingers pointed back in the direction they belong. The approved Restated documents from 2014 are clear. This should keep the HOA out of the aftermath that develops when buyer and seller and the agents read the CC&Rs and find out they are all wrong on their assumptions.
Buyer beware. Seller beware too. And real estate agents (1) be aware that CC&Rs control over the law in areas of maintenance and many other obligations, and (2) understand why HOA board members will not talk to you and (3) understand that you should not be practicing law without a license. Savvy realtors do not try to interpret governing documents. They refer questions back to their clients and communicate with the HOA through their clients. They recommend that if an owner has questions, he or she get some feedback from a lawyer (I hope).
I have been a condo-homeowners association attorney for more than 24 years. I like helping people get their arms around their homeowner association problems and find a solution. A balanced attitude can go further to resolve issues than just about anything else.
WATCH YOURSELF AND KEEP YOUR “HANDS” INSIDE THE BUS IN SALE OF PROPERTY IN AN HOA Since the last blog
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