First Time Home Buyer with surprise HOA

Hi Candy:

Look at the filed and recorded copy of Warranty Deed (copy should have been mailed after closing to buyer) and see if it references any Declaration of CCR’s attached. Also, review the Title Insurance Policy to determine if there is any reference to an HOA and governing documents. If none of these documents have any reference to the Declaration, Bylaws, etc. then potentially if he has issues and there are individuals claiming there is an HOA, I would recommend contacting the Title Insurance Company.

If there is an HOA per the documents then copies of all association documents are available either via the HOA or the County Records. I would check and see which entity has the least cost for providing the copies of documents, if needed. In some counties documents are also available via the County Records website.

Hi Candy,

What you need to understand is that even if there was a lack of disclosure about the HOA or the possibility that the title company failed to find it while doing a title search, the fault is not with the Association. The fault would be with the seller, the settlement company, the Realtor and the title company. As long as your brother owns the property, he is responsible for any assessments.

Your brother should look through all the documents when he purchased the home. If there truly is nothing that says that there were deed restrictions or a mandatory HOA,he might have a case against the seller, Realtor, etc.. What he also needs to do is decide what he will need to make him whole. Typically, this would be some sort of a cash settlement or being allowed out of the purchase contract (which will mean that he no longer owns the property).

1) Is this where title insurance comes in handy?

I would have him start with the title insurance and his Realtor as they should be able to help him. He may also want to consult an attorney knowledgeable in real estate and contract law to see what his options are.

2) Who do we go to for the CC&Rs and bylaws?

He should contact the Association at the address he is to send his assessment to and request copies of the CC&Rs, the Bylaws and the Articles of Incorporation along with any architectural guidelines. He should also inquire if there are any planned special assessments in the near future.

VERY IMPORTANT - HE SHOULD ALSO MAKE ANY SCHEDULED ASSESSMENT PAYMENTS

According to my research, escrow was suppose to get that information prepared.

Typically HOA fees are not part of closing or escrow. They are separate items.

As Janet pointed out, there should have been something about deed restrictions when the title search was done as the CC&Rs would have been attached to the deed. Additionally, there should have been something about a mandatory association in the listing.

Although FHA loans require a PUD rider, non-FHA loans do not.

You are correct, this should have all been available at closing and provided by the settlement agent (whoever took care of the closing process).

3) Should our city or county have the CC&Rs or bylaws on file?

Yes. The CC&Rs are filed with the County and attached to the deed. The Articles of Incorporation would be filed with the State Corporations Commission. The Bylaws may or may not be filed with anyone - this would depend on your State laws.

I'm of the expectation that your brothers house is also in CA. If it is, the davis-stirling act would apply. Here is a link to the davis-stirling.com website. It is a very useful tool.

Per that site, there are escrow disclosures that the seller must make Again this is between the buyer and seller. The Association is not part of the purchase transaction, so any concerns of wrong doing would be against the seller and parties involved in the closing process. This is why I suggested contacting an attorney.

Hope this helps,

Tim

It is viewed as the buyer's responsibility to be informed of a HOA. It is NOT the realtor, seller, lawyer, or mortgage company. The CC&R's are PUBLIC records available at the courthouse in the records department.

Now, that I got that out of the way here is the failure points of each. How many people or even realtors know that these documents are Public? I dare say over 95% of the people don't know until it's too late. An experienced Realtor should know but not guaranteed nor their official responsibility.

The seller may be trying to unload the property due to thier issues with the HOA. So they may not want to spoil the sell by revealing this information. This isn't illegal. It's a gray area...A good seller would atleast be considerate enough to bring a copy of the rules to the closing. It's not a requirement they do it but a consideration.

The lawyer doesn't much care if there is a HOA or not. They are concentrating more on the money transactions and titles/contract. Most figure you have been told along the way about the HOA. Documents are soo many and require so much signing that they basically just gloss over it. It's the buyer's responsibility to slow the process down a bit and ask questions. I've been through several closings and they can be quite brain numbing after awhile that you overlook certain things. I believe I was told about the HOA during my first closing but it was in the middle of everything else. However, I already knew about the HOA so I was careful about listening to that part of the paperwork.

The mortgage company isn't responsible for informing the buyer of the HOA or dues. Which is quite surprising as they have to factor in the dues payments when approving the loan. Our dues were 50 dollars a month which could have afforded me another 25K for overall loan approval instead of 100K for example. Mortgage companys know this is a factor as dues are something that is lienable. Plus there is a PUD rider that some loans require that reveal the existance of HOA. I believe it's even on the appraisal form about HOA factors. I would read the house appraisal report if it is revealed there. However, that may be something that only the seller has.

Overall, even the HOA isn't responsible for informing a buyer about the HOA until after they are an owner. That is because ONLY owner's are members of the HOA. A buyer isn't a member and doesn't need that information coming from them. It has to come from a public source.

I would tell your family member that they had better get up to speed on the HOA. They can't not pay the dues just because they didn't know about them. It's best to save their money to pay the dues than some lawyer to sue. This is a lesson learned....

I like that rule. Unfornately, most states don't have that rule/law. I've personally spent hours on the phone with potential buyers explaining our HOA set up if they contacted me. It wasn't my responsibility and in 1 case it almost lost a sale over it. Which looking back on it, could have set us up for a possible lawsuit. Eventually the buyer did purchase the property. They almost bolted over the issue that they didn't own the property around their home. They would only own the house and lot it sat on. The property around the home is owned by the HOA which is made up of ALL the owners. I explained to them that it was setup this way so the HOA could provide lawncare and they didn't mow their lawn. When they heard they didn't have to mow, they magically signed that dotted line! LOL!

So a HOA has to be careful when providing a buyer with HOA information. They can't interfere with a contract of an owner. Plus the potential buyer isn't a member. Which can make it difficult for a HOA to provide certain information since only owner's are allowed access to certain items. If your looking for HOA information, don't expect them to hand over financial information of the HOA but just the rule set to potential buyer. For my HOA, I created a brochure with all the highlights of the HOA. It explained what the fees covered and the basic rules.

Candy:
You said:
However, while fixing up the front yard, his neighbor told him he should get it approved first.

Was that the extent of his conversation? Why not start with the neighbor? How did he know it had to be approved, and isn't he in the HOA? Seems odd.

Bruce:

Maryland, also requires the same actions you mention. The realtor "must inform the buyer" if an HOA is involved.
The seller has to turn over the CC&R's at settlement.

Jim

Bruce,

VA has a similar law. In fact, VA also requires that the last six months of minutes from Board meetings must also be provided as part of the sellers disclosure of the HOA.

Tim