HOA Resale Certificates

Resale Certificates are often a frustration when buying or selling a property with a Home Owners or Property Owners Association. They are required when selling a property that has mandatory dues or assessments paid to an HOA.

What is a Resale Certificate?

A resale certificate is actually a set of documents prepared by the HOA or the HOA’s management company. They contain disclosures and detailed information about the property and the HOA community.

While associations have their own sets of rules, some requirements are alike for all Texas transactions with mandatory associations. In Texas, the seller must provide a resale certificate to the buyer by the deadline stated in the purchase contract.

The Texas Real Estate Commission provides a standardized resale certificate form for both single family homes and condominiums.

https://www.trec.texas.gov/sites/default/files/pdf-forms/37-5.pdf

https://www.trec.texas.gov/sites/default/files/pdf-forms/32-4_0.pdf

The cost

The cost for obtaining a resale certificate in Texas is capped at $375. Since it is the seller’s responsibility to provide it, the seller typically pays this expense at the time it is ordered.

HOA management companies usually expect payment upfront before they will process an order. By Texas law, they have 10 business days (usually 14 calendar days) to deliver the resale certificate and documents once the order is placed and payment is received.

There is no restriction on rush or demand fees. If the requested information is due before 10 business days, the additional expedited or demand fees range can range from $100 to $350 on up. To avoid rush fees, allow adequate time in the contract for these documents to be delivered.

The HOA may also charge transfer fees, processing fees, account closure fees, or fees for items like common area keys. These are disclosed in the resale package.

Essential elements

When a property is part of a mandatory association, the owners must pay dues to maintain amenities, shared areas and perhaps other services. An HOA resale certificate discloses the amount and frequency of dues and assessments. It includes a financial outline of the HOA, including the budget, reserves and previously approved future special assessments or dues increases.

The rules and regulations of the association are made known in the governing documents. Restrictions and rules that owners are expected to follow are spelled out. These can often include details about landscaping, pets and animals, sign and flags, holiday decorations, parking, noise levels, rental restrictions and more. Architectural requirements and aesthetic rules such as front door color, fence design, roof materials, etc. are specified in these documents.

Association voting procedures, board member elections, etc. are explained. The common areas, maintenance, and repairs that the association is responsible for are detailed as well as the owner maintenance requirements. The Resale Certificate also discloses any lawsuits they are involved with, and other information.

Specific information about the property being sold is included in the resale package. This gives the buyer notice of any violation of the HOA rules prior to closing. This will also reveal if the current owner is behind on any dues.

Acceptance of the HOA documents

Once the resale package is disclosed, silence is considered consent. It is the buyer’s right and responsibility to review the HOA rules, restrictions, requirements, and resale certificate to ensure they are comfortable with the association’s mandates.

As stated in the contract, after receiving the HOA documents and resale certificate, the buyer has a specified number of days to terminate the contract if they don’t like what the resale certificate or other documents reveal.

The buyer’s mortgage lender will want to review the HOA information for details such as owner occupancy rates, lawsuits, and the HOA financial health. If a property doesn’t meet the lender’s criteria, they may refuse to issue a loan.

The purpose of the resale certificate is to provide transparency and protection to all parties. It ensures the buyer is informed about the community they are joining, their obligations to the HOA and the rules they are agreeing to follow. 

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HOA Violations - Who is responsible?

A recent home buyer posed a question about an HOA violation concerning their new home. It seems the fence installed by the previous homeowner a couple of years ago doesn’t conform to the HOA rules. Now the HOA is requiring the new owner to bring the fence into compliance with the HOA regulations. Who is responsible for correcting a violation of an HOA restriction?

What is fair? 

When a property is part of a mandatory homeowners association, a violation of the HOA rules, regulations, or restrictions does not usually hinder a sale. And the seller is not automatically obligated to resolve the violation.

After closing, the new buyer may get a letter from the HOA stating that they are out of compliance and must fix the issue. That kind of surprise shouldn’t happen, but certainly does sometimes.

Know your rights

When there is a mandatory owners association (HOA), the standard TREC contract has a provision for providing HOA documents and for the buyer to object to any issues. The buyer is entitled to receive copies of all documents that govern the maintenance or operation of a property including restrictions, bylaws, rules and regulations, and a resale certificate.

HOA documents are essentially restrictions to the owner’s use of their property. These can include a variety of matters: how many and what kind of pets are allowed, signs or flags being displayed, parking of vehicles, guests allowed, cable or internet services available, front door color, fence design, roof materials, etc. What is fine with one new homeowner may be completely unacceptable to another.

The Resale Certificate discloses the amount and frequency of dues and assessments, any lawsuits they are involved with, and other information. A current resale certificate is required from the HOA to state if they are aware of any current violations to their rules and restrictions.

The HOA disclosure on the resale certificate gives the buyer notice of any violations prior to closing.

As stated in the contract, after receiving the HOA documents and resale certificate, the buyer has three days to terminate the contract if they don’t like what the resale certificate or other documents reveal.

Or the buyer could address any issues with the seller within that three-day period and come to an agreement. The buyer and seller could amend the contract to require the seller to fix a violation.

In the case of our new homeowner, they did not take notice of the violation disclosed by the HOA or the fence restrictions. And they did not object to the HOA documents in the three-day period. The seller claimed to have no previous HOA notice of the violation and therefore had no obligation to disclose an unknown issue.

Know your responsibilities

When it comes to HOA documents, the buyer must be proactive. It is the buyer’s responsibility to review the HOA rules, restrictions, requirements, and resale certificate prior to purchase. The three-day period for objections is important. HOA documents can total more than 100 pages. That’s a lot of reading to do in less than three days.

If the HOA has a website, they are required by law to post their restrictions on their site. If you’re considering the purchase of a property with a mandatory owners association, why not go to their website and review the rules, regulations and restrictions prior to executing a contract?

The buyer has a duty to ask questions and resolve any HOA item they have an issue with. This should happen as soon as they receive HOA documents. The three-day period is their opportunity to request that the seller fix any violations. If they fail to do so, then along with buying the property, they are buying the problem that comes with it.

A buyer of a property with a mandatory HOA is obligated to pay assessments and to follow the restrictive covenants governing the use, maintenance, and occupancy of the property and community. They need to take the time to understand their HOA commitment.

Buyers have the right and responsibility to make an informed decision on their purchase.

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The opinions expressed are of the individual author for informational purposes only and not for legal advice. Contact an attorney for any particular issue or problem.

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Texas 2021 Real Estate Related Updates

Real estate topics took a back seat to big issues like the pandemic and power grid failures in 2021 with the Texas Legislature. Of the 3,800 bills enacted into law, real estate still got a little attention. Some of the welcome changes coming next week are due to lobbying efforts from the Texas Association of Realtors and the Texas Land and Title Association. New real estate contracts reflecting these laws are now available and are required to be used by Realtors starting September 1, 2021.

Homeowner Associations 

The law from Senate Bill 1588/House Bill 3367 requires more transparency from HOA management companies. It puts a cap on the costs for obtaining subdivision information, resale certificate updates, and HOA transfer fees. The limit for the fee to obtain subdivision information will be $375 and the fee for an updated resale certificate is topped at $75. 

The new law also states that the HOA’s publicly filed management certificate must disclose the amount of any transfer fees charged with the sale. That information will be made available in the Texas Real Estate Commission (TREC) database. This will allow agents to look up the transfer fees on a property prior to listing it for sale or submitting a purchase offer for their buyer. It offers protection to homeowners and buyers against unreasonable fees and surprises. Additional consumer privacy protections for homeowners are included in this new law. 

Effective September 1, 2021, the law is being phased in. TREC will establish a database to accept management certificates from HOAs and make it available to the public by December 1, 2021. HOAs must electronically file their management certificate with TREC no later than June 1, 2022. 

Unfortunately, some HOA management companies (and companies that provide HOA resale certificates and documents) have already found a way around the new law limiting their fees. A resale package from Condocerts.com last week included a transfer fee (normally paid at the time of closing) and a processing fee. Instead of $375 for the resale package, the upfront cost to the seller was $650. Fortunately, we had enough time to avoid their outrageous rush fee.

Public Improvement Districts (PIDs) 

House Bill 1543 is now a law that requires a property owner in a PID to disclose that the property is in a PID and certain details of the PID prior to executing a contract with a buyer. The PID notice must be acknowledged by the buyer and seller and will be recorded in county records at the time of the sale. A PID is a special district created by a city or county. It allows a special assessment tax against properties within the district for improvements or maintenance. The existence of a PID on a property can currently be found in the county appraisal district tax records. More details of a PID must now be filed with the county deed records starting September 1, 2021. 

Appraisers 

House Bill 2533 specifies that unless a lender requires a full appraisal for a financial transaction, a licensed appraiser is not required to comply with Uniform Standards of Professional Appraisal Practice (USPAP) when performing an evaluation. If an appraiser performs an evaluation that is not in compliance with USPAP, then it must include a notice stating that the evaluation is not an appraisal performed in compliance with USPAP. This takes effect on June 14, 2021. A new Statute of Limitations law from House Bill 1939 provides for a two-to-five-year limit for lawsuits filed based on an appraisal or appraisal review. This excludes lawsuits based on fraud or breach of contract and is effective September 1, 2021. 

Quitclaim Deeds 

Transferring title in Texas with a Quitclaim Deed should become easier after September 1, 2021. This law will allow a purchaser of a property with a Quitclaim Deed to be considered a bona fide purchaser if at least 4 years have passed since the deed was recorded. Title companies are wary of quitclaim deeds because, unlike a warranty deed, they only convey whatever interest the signer may or may not have in the property. The signer of a quitclaim deed may have limited or no ownership of the property. There is no warranty of full ownership being transferred. This new law may remove quitclaim deed concerns if at least 4 years have passed. It does not affect quitclaim deeds recorded prior to September 1, 2021.

Mechanic’s Liens 

A new law extends the description of lien rights. Subcontractor liens must now be filed within a particular time period and notice requirements are detailed. Limitations for filing suit to foreclose a lien and who must be licensed to file a lien are now updated. 

Judgments on Homestead Properties 

Using a homestead affidavit to remove a judgment on a property just got clarification. Previously, a homeowner seeking to remove a judgment in order to sell or refinance would sign a homestead affidavit, send it to the creditor, wait 30 days and see if the creditor disputes the homestead claim. The new law allows the owner to sign a homestead affidavit and record it with the county at any time. The creditor is still notified of the recording and has 30 days to dispute it, but the homeowner can get the affidavit and issue of homestead resolved ahead of a transaction. 

 Racial Restrictive Covenants 

Some older subdivisions in Texas have original restrictive covenants regarding certain racial or ethnic groups. These have been invalid and unenforceable for decades but they still show up in the county records as legal documents. This new law allows a property owner to request that the County Clerk actually remove the language of the racial restrictions from the public record. The county would remove the document and attach another document stating that a restriction that is void has been removed. While a good concept, this law just changes the county paperwork. 

Freedom of Expression 

House Bill 3343 prohibits insurers (like title insurance or homeowners’ insurance) from discriminating on the basis of political affiliation or expression. 

 And if the rules of real estate are driving you to drink, then you may have notice House Bill 1024. Restaurants may start including alcoholic beverages in delivery and to-go orders. It has no effect on real estate transactions but cheers to that law anyway.

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The New 2021 Real Estate HOA Addendum

If you are selling a property that is part of a Homeowner’s Association, get ready for a potential surprise. I’m finding some upset sellers dealing with the recent change to paragraph C in the HOA addendum.

Last month (April 2021), the Texas Real Estate Commission made a slight change to the form titled Addendum For Property Subject to Mandatory Membership In A Property Owners Association — a big name for a small document that can have a big impact on your closing costs. This addendum is considered part of the contract when the property is part of a mandatory HOA.

The previous HOA addendum addressed the limit that the buyer would pay for “association fees or other charges association with the transfer.” Buyer and seller would agree on an amount and fill it in on the addendum. Typically, the amount filled in on this addendum was between $100 and $300 for the buyer’s limit. The seller would pay any association transfer fees that exceeded the buyer’s responsibility filled in on the addendum.

The previous HOA addendum also had a paragraph D that stated the “buyer shall pay any deposits for reserves required by the Association.” That changed in April.

The new HOA addendum states the limit that the buyer will pay for “association fees, deposits, reserves and other charges associated with the transfer.” I am still seeing the amount filled in between $100 and $300.

What many sellers and agents do not notice (until it is too late) is that paragraph D no longer requires the buyer to pay for the reserves. That part of the addendum was deleted. The deposits and reserves paid by the buyer are now lumped together with the transfer fee and are limited to the amount filled in the addendum. The seller must pay any amount over that limit. These charges are in addition to the usual seller expense for the resale certificate and HOA documents that must be provided to the buyer.

That is not a problem unless your HOA has a fee for reserves. HOA reserves are sometimes referred to as capital reserves, capital contribution, mandatory reserves, reserve deposit, etc. Some folks call it a ‘buy in.’ It is the HOA fee charged to new buyers in a development to build up their funds.

The reserve fee can be hefty. I’ve seen it range from $1,000 to $10,000. Some sellers are getting an ugly surprise when they realize the capital reserve fee is now mostly their responsibility.

Imagine you are a seller who purchased a property a few years ago and paid the HOA capital contribution when you bought your home. Now you may be paying it again for your buyer because the amount listed for the buyer’s limit is only $150 and barely covers the transfer fee.

Do not count on your HOA or HOA management company to guide you on this new addendum. Most HOA management companies are unaware of this change.

Many HOA documents state that the capital reserve fee is a buyer responsibility. However, if the addendum signed by the seller states that the buyer is only paying up to a small limit for fees, then the seller must adhere to the contract that they signed and pay the balance.

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