In real estate sales, sellers are required to disclose any material fact that any prudent buyer would want to know before completing a purchase. Property for sale over a former toxic waste dump would be an obvious example of the need for disclosure. There are more common issues, like roof condition or a leaking crawlspace, but the idea is the same.

Anything that could negatively impact the value or marketability of the property needs to be divulged before closing. While there are usually statutory disclosure requirements of single family house sellers, these same disclosures are generally not required of homeowner association home sellers. This is a huge problem and here’s why:

Homeowner associations obligate their members to substantial financial obligations to the association and each other. So, while a buyer may purchase a condo in great condition and needing no repairs, that same buyer is also obligated to share the cost of certain repairs to all the condos, which may be in very bad condition. Since there is no specific legal requirements in most states to disclose these obligations, the buyer often finds out after closing when presented with a special assessment that can amount to many thousands of dollars.

Here’s the key to uncloaking this problem: The Board of Directors controls the quality and quantity of disclosure information. The responsible Board treats the association like the business that it is and keeps certain basic information available such as:

• Governing Documents Includes the Declaration, Bylaws, Rules & Regulations, Resolutions which are the specific obligations each member has to the association and other residents.

• Newsletters  Reveal events like renovation projects and litigation that could be indicative of a possible special assessment.

• Meeting Minutes  Preliminary discussions about special assessments are often found in meeting minutes.

• Annual Budgets for Last 3 Years   Could reveal increasing expense trends and failure to adjust for them.

• Financial Reports Monthly reports comparing actual expenses to budget should be available to track income and expenses.

• Collection Activity How many of the assessments are overdue 30, 60 or 90 days? If some don’t pay, guess who gets to?

• Litigation Activity Are there any pending lawsuits that could trigger a special assessment?

• Reserve Study   A reserve study details a long range maintenance and funding plan for association components like roofs, painting, paving, etc. Lack of a reserve plan is the biggest time bomb homeowner associations today.  And failure to plan for future expenses often mirrors a lack of attention to current maintenance.  

This information is what any informed buyer would (or should) want to know. It’s the Board’s responsibility to make it available to owners so they, in turn, can provide proper disclosure to their buyers. If buyers are informed of their responsibilities, they will make better neighbors. And does the association really want members that don’t care how association business is handled?  Is your Board prepared to lift the veil o’ mystery on disclosure?

For more information on this subject, see www.Regenesis.net.

Published: February 21, 2001

Use of this article without permission is a violation of federal copyright laws.

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Richard Thompson owns Regenesis, a management consulting company that specializes in condominium and homeowner associations. He is a nationally recognized expert on HOA management issues. Regenesis publishes The Regenesis Report, a monthly newsletter for HOA boards, developers and managers. To subscribe, go to Regenesis.net. He can be contacted by email at .

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