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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Digging into your Home's Mineral Rights

When purchasing a Texas property, the mineral rights may or may not come with it. Uncovering and then cashing in on mineral rights are not as easy as Jeb Clampett shootin’ up some crude.

Do Mineral Rights Always Transfer?

Whether any mineral rights transfer with a property depends on what rights the current seller owns. Let’s dig a little deeper. In the beginning of time (or for the sake of this article, let’s say 300 years ago), a piece of land included all rights to the property along with the right to do what you wanted with it.

But in time, some property rights may have been given away, taken away, or sold. A property owner can transfer all or part of their property rights by deed, lease, easement, mortgage, or will. Someone who owned your piece of land 100 years ago could have done any of those with the mineral rights. You may own a huge piece of land and have no right to the minerals that lie beneath it.

TREC Residential Contract, Paragraph 2D

Using the standard TREC residential contract, the mineral rights owned by the seller transfer with the property per paragraph 2D. But only the mineral rights owned by the seller will transfer to the buyer. An owner can’t sell you rights that they don’t have. If the seller wants to retain any of the mineral rights, an addendum must be included.

The mineral rights addendum specifically states: “A full examination of the title to the Property completed by an attorney with expertise in this area is the only proper means for determining title to the Mineral Estate with certainty …”

Even though the surface rights may convey to the buyer, the subsurface mineral rights like gas, oil and other mineral rights that may not necessarily transfer. Surface rights that transfer can include natural resources such as plants, water and other resources. Details on ownership of those need expert legal advice as well.

How Do You Get The Mineral Rights?

If you really want to who owns the mineral rights for a property, hire an abstract company. Or you can try the do-it-yourself method by researching the property records at your county clerk’s office. It is often necessary to trace records back through several transactions to determine where they may have initially been sold and then whether those rights were then sold to someone else.

In Texas, mineral rights are transferred with a Mineral Deed.  Occasionally, mineral rights are not sold but are leased. A leasehold is a different scenario that needs a real estate attorney’s guidance.

Laws concerning mineral rights can be complicated. Just remember that property ownership is completely separate from mineral rights ownership. Sorry folks, but you have no rights to your land’s minerals if you don’t legally own the rights.

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

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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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You Can't Take it with you when you Sell

There is often confusion about what a seller can and cannot take from a house when they sell it. Things can get unpleasant and disputes can erupt when all parties are not clear.

Let’s shed a little light on what goes and what stays when a home sells in Texas.

What conveys?

Paragraph 2B of the standard Texas real estate contract lists specific items that must convey with the property unless otherwise stipulated. These are items that are permanently installed and built-in. They include appliances, window screens, mirrors, ceiling fans, mail boxes, light fixtures, and more.

Paragraph 2C of the contract lists additional accessories that must remain with the property such as fireplace screens, curtains and rods, blinds, fireplace logs, garage door controls, etc.

Whether or not an item conveys with the house can often depend on if it is considered permanently attached or built-in. For example, if a mirror is hanging on a nail in the powder bathroom, it is not permanently installed and the seller may take it. However, a mirror glued to the wall or screwed in by framing is considered attached and remains with the house. A kitchen refrigerator does not go with the house unless it is built-in. If it is built-in, then it must remain.

Mounts and brackets for televisions and speakers are listed in paragraph 2B and must stay put. However, the actual television and speakers do not go with the sale. Outdoor cooking equipment that is built-in must remain, but items like free standing grills do not. Paragraph 2C lists draperies, curtains and rods as items that must stay. All keys plus controls for gates and garage doors must also convey.

What to exclude?

Any items that the seller wants to exclude must be listed on the first page of the contract. I often see a favorite light fixture or specific window treatments listed in this space.

Personal property items belong to the seller and go with the seller. The seller may opt to gift something (like a washer and dryer) to the buyer and the buyer may agree to accept it. If the buyer does not agree to accept it, then the seller must remove all personal property prior to giving possession. A Non-Realty items addendum should be completed by both parties for any personal items transferring from seller to buyer. 

Texans may find it surprising that in some countries, the seller takes everything but the kitchen sink – literally. I’ve seen folks buy a home in Europe and discover that the seller takes all appliances, light fixtures, door knobs, etc. In other countries (particularly resort areas), the seller may leave everything, including the furnishings and dishes.

When in doubt, read the details in Paragraph 2 and put what you want in writing at the time you sign the contract. Then everyone will understand what you can and can’t take with you when you go.

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Are Title Records Gender Biased?

When the title to a piece of Texas real estate is held in both a man and woman’s names, the first name listed on the deed is usually the man’s name. The man’s name is then shown as the primary title holder on tax records and legal documents.

One must wonder if this is some kind of antiquated tradition. Or is the system chauvinistic?

The reasoning has nothing to do with gender bias. When the title company receives a contract, they reference the buyer or buyer’s names as they appear on the contract. Whichever name is listed first becomes the first name listed on title documents and on the deed.

However, when the buyer is getting a mortgage for the purchase, the title company must match their documents with the lender’s paperwork. The names must appear exactly the same and in the same order on both the mortgage lien (deed of trust) and on the ownership deed (warranty deed).

Typically, the first person listed on the loan application becomes the first name listed on the lender documents. The mortgage lender will list the new owner names on their mortgage lien to be filed by the title company. The title company will match the names and their order for documents to be signed at closing.

After closing, the title company records the ownership transfer and liens with the county. Tax records are then changed to the new owner names as they were recorded with the county.

The buyers’ names must also mirror their names as they appear on their IDs (driver’s license or passport). If Billy Bob is really William Robert, then that is how his name needs to appear on all purchase documents. Likewise, if Sally Sue is really Sarah Susan, then that is how her name will appear on purchase documents.

Regardless of whose name appears first, in most residential real estate, both owners are considered joint owners with neither of them owning a larger interest in the property than the other. Whose name appears doesn’t really matter.

If it matters to the buyers, then they should discuss it with their mortgage lender and the title company prior to closing.

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

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The Texas Real Estate Contract Kick Out Provision

A Kick Out provision goes by many names in the world of Texas real estate contracts. It’s also known as a Knock Out clause, a Sale of Other Property contingency or simply a contingent contract.

A Kick Out provision is actually an addendum to the contract that takes into consideration the sale of another property by the buyer. It makes the contract conditional on the buyer selling a property they currently own.

“When a property goes under contract with this contingency, the property is shown in the MLS system as ‘Active Kick Out.’ This classification is different than the “Under Contract,” “Pending,” or “Active Option” categories. The property is technically not off the market.

According to the MetroTex Association of Realtors, the description of Active Kick Out, or KO, status is:

“Property has an offer contingent upon the sale of another property by buyer. Still available for showings and backup offers. Will expire on the original expiration date the agent entered.”

While this provides the buyer a benefit, in return it affords the seller a benefit as well. This Kick Out addendum essentially allows the seller to “kick out” the buyer if the seller receives an offer from another buyer. If the seller accepts an offer from another buyer, they must give notice to the current buyer and allow the current buyer the option to either remove the contingency or terminate the contract. If the contract terminates, the backup contract moves into the primary position.

As always, there are a couple of important items to note and to make this provision work.

 This option is not available to the seller without this addendum.

Our Texas real estate contracts generally don’t give a seller the option to get out. This addendum does. It gives the seller the opportunity to require that the buyer waive the contingency with a day or two notice AND it lets the seller require the buyer to put up additional earnest money if they waive the contingency. Many real estate advisors suggest the additional earnest money amount should be a “meaningful” enough amount to reflect the buyer’s sincerity.

This contingency on the sale of other property is actually a contingency on the buyer’s receipt of proceeds from the sale of other property.

The buyer must receive the funds from the sale of their property in order to move forward with this purchase. If the buyer doesn’t receive the funds from their sale, they may get out of the contract. This could become an issue if the buyer were closing their sale on a Friday afternoon and funds were not disbursed before end of business. They wouldn’t have the proceeds from their sale until the following Monday (or later if that Monday were a holiday). Or there could be some sort of judgment or lien on the property that prevents the buyer from receiving any proceeds from their sale.

Sellers sometimes welcome a Kick Out provision because it allows them to continue marketing their property while they have it under contract. Buyers can appreciate a Kick Out addendum because it reduces their risk if their sale proceeds are a necessity for their purchase.

Cooperation from both sides can help keep a deal from landing on its bum.

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