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Who Pays For Homeowner Association Documents?

Written by on Tuesday, 02 September 2014 12:16 pm
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When a condominium is sold, who should pay the cost of providing the buyer with various HOA (Homeowner Association) documents, the buyer or the seller?

The purchase and sale of a condominium unit can often be more complicated, involve more paperwork, and have proportionately higher expenses than the sale of a free-standing single family home. This doesn't just apply to condominiums; it is also true of sales in other sorts of common-interest developments, e.g. a free-standing home in a development that has a homeowner association with community-owned property such as a clubhouse, pools, playgrounds, streets, etc.

In these transactions expenses are often driven up by fees that are charged for association documents such as CC&Rs (Covenants, Conditions & Restrictions), By-Laws, Operating Rules, and disclosures about the HOA, its budget, balance sheet, reserves, assessments, etc. The provision of many of these documents may be required by law. Naturally, the question arises: who is to pay for all of this?

For many years this question was not a big issue because the costs were fairly minimal. But, for at least the past two decades, in California those charges have become significant. (Probably in other states too.) Both homeowner associations and their management companies learned that the business of providing documents for ownership transfers could become a significant profit center -- thus offsetting the need to raise monthly dues. Recently, the California Association of REALTORS®(CAR) provided the state legislature with examples showing that the charges for providing HOA documents to a prospective purchaser could exceed $1,000.

For some years now, in California, the question of "who should pay?" has been a subject of negotiation. The current standard CAR purchase contract contains an allocation of costs section that allows for either party, or both in part, to be charged. When CAR releases its new standard form purchase contract in November, that issue will no longer be negotiable. More precisely, the contract will stipulate that the seller is to pay for the cost of providing those documents that the law requires be given to the purchaser.

The change was not, of course, just the result of a whim or an anti-seller bias on behalf of CAR's Standard Forms Committee. Rather, it was the result of legislation.

Assembly Bill 2430 (Maienschein) passed the legislature and was approved by the Governor July 23, 2014. It will take effect January 1, 2015. AB 2430 had a two-fold overarching purpose: 1. "to make it 'perfectly clear' that [non-required] documents cannot be bundled with...documents that are required to be provided by the seller or seller's agent..." , and 2. "to make it 'perfectly clear' that it is the seller who is required to pay the document provider for provision of the documents to the prospective purchaser..."

Part of the way the bill accomplishes its purpose was to provide a mandatory request form that will show which documents are required by law and what the document provider will charge for each one. Moreover, the bill clearly makes it possible for sellers to reduce their costs by providing to the buyer any of the documents -- provided they are current -- that the seller has in their possession.

While all of this is clear, it may pose problems in some situations. Escrow companies do not want to order documents unless they have money in the escrow account to pay for them. Typically, such payment would come from the buyer's earnest money deposit. But, in this case, if the charges must be against the seller, the seller may need to bring money into escrow, early on, in order to cover it. Unfortunately, though, as in short sale scenarios, the seller may not have the money to bring to escrow. In other cases, such as REO sales, the seller may have the money, but will be adamantly against putting any into escrow.

More little things for the real estate agent to work out. Isn't that great?

Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way.

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  About the author, Bob Hunt

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