When a person enters into an agreement to purchase a property that is part of a common interest development it is critical that they obtain, review and approve certain documentation pertaining to the common interest development. State statutes have varying requirements relative to the documentation that a seller of a separate interest must provide to a prospective buyer, so it is important for the parties to a purchase and sale transaction to know exactly what their state requires. The obligations are typically the initial responsibility of the seller of a property, but there are also requirements relative to the assembly and delivery of the required information that are imposed on the homeowners association. These statutes typically have time requirements for compliance and penalties for violations.
Even if not made mandatory by applicable laws, buyers should review the following items in order to familiarize themselves with the property that they are contemplating purchasing and the homeowners association that has control over that property:
- All of the governing documents of the homeowners association, and in particular, all operating rules that the homeowners are obligated to comply with including rental and pet restrictions;
- Current documentation that identifies the regular and special assessments that the owner of the property being purchased is responsible for any any contemplated future special assessments;
- Current documentation (financial information) from the homeowners association that provides the status of the association’s reserves, operating income and expenses, and the association’s current operating budget;
- A copy of the homeowners association’s most current reserve study;
- A statement from the homeowners association that details all outstanding amounts that are owed by the current owner of the property being purchased, including late charges, interest and penalties;
- Information from the homeowners association about any penalties or violations of the association’s governing documents that relate to the property being purchased;
- Information from the homeowners association pertaining to any pending or contemplated construction defect actions, including identification of defective conditions and plans / estimated costs for repairs;
- Copies of all minutes of meetings of the association’s board of directors and members for the previous 12 months.
A review of all of the above items will provide a prospective purchaser of a separate interest within a common interest community with the information that is generally required to make an informed decision about purchasing the property in question. Unfortunately, it is commonplace for prospective buyers to not receive all of the information that should be reviewed in order to make an informed decision about purchasing a property within a common interest development and/or to receive information and not review it because it is too voluminous or beyond their understanding. Instead, they naively sign documents indicating that they have read and approved documents that they have never seen and then proceed with the contemplated transaction. This is a major mistake as issues frequently come up after a sale that relate to items that buyers contend were never disclosed to them, or they didn’t understand. Buyers who are not able to review and/or comprehend the necessary documentation on their own should request assistance from experienced professionals.
All of the information identified above should be obtained and reviewed within the inspection contingency period that is set forth in the parties’ purchase agreement. If all documentation that is necessary is not provided within that time period, a buyer should seek to extend the contingency period for a sufficient amount of time to allow for obtaining and reviewing the documentation, or give serious thought to canceling the transaction.