Some states have laws about certain documents that must be provided to the buyer of a home when it’s located within an HOA and the fees that may be charged for these documents. For instance, in California, we can find these laws in Civil Code 4525 - 4545.
Although this may seem like a boring topic, it’s one that is often overlooked or misunderstood. Let’s go through some of the most common questions and misconceptions. Think of this as a report card of how well you and or your company are doing in the resale document arena. Write down your answers before reading each paragraph to see how you do. For the purposes of this exercise, we will primarily be referencing California state law but chances are your state has laws regarding each one of these topics. Take the time to look up your specific state law or reach out and we can provide answers to your specific question.
1. What governing documents are required? Civil Code §4525(a)(1) starts out a bit vague as it states, “A copy of all governing documents”. Then it goes on to list eight specific articles or documents to be included. As far as the “governing documents”, here are a few of those not specifically required, but typically included: CC&Rs, Declaration, Bylaws, Rules or Regulations, Articles of Incorporation, etc.
2. Are BOD Minutes part of the required package? Sort of... “if requested by the prospective purchaser” ... While they are not required to be in the Resale Package, the previous 12 months must be made available if requested.
3. Who needs the documents and why? The seller is responsible for providing them to the prospective purchaser. The buyer of the property needs the documents so they can review them and ultimately agree to abide by the Rules and Regulations BEFORE they purchase in a certain neighborhood. This is important to: Homeowners, Board Members, and Managers. It makes all your lives easier if you don’t have to argue with, fine, or have hearings about people who “didn’t know the rules”.
I’m going to add a third part to this one: When do they need them? The law says, "as soon as practical”. The buyer has 5 calendar days to review the documents and cancel the contract without penalty. In some areas of the state, it’s common for the escrow or title company to order the package just before the closing and include them in their “closing packet”. This is bad business practice all the way around. We need to educate the real estate agents (buyers and sellers) on the importance of getting information to their clients as early as possible in the sales process.
4. What’s the difference between a “True Statement of Fees” and an Escrow Demand? They serve two different purposes. The Statement of Fees is a document that is required by law to be included with the resale documents. It is information for the prospective buyer and should be issued with the Governing Documents at the beginning of the buying cycle. The Escrow Demand is a standalone document that is required to close escrow. Its purpose is to let the title company know what is owed and what is due at closing. Therefore, it is issued at the end, just before “closing”. One does not take the place of the other.
5. How much can you charge? Anything you want. Just kidding. In California, the association may collect a reasonable fee from the seller based upon the association’s actual cost for the procurement, preparation, reproduction, and delivery of the documents. It is a good practice to know what is cost to produce the documents. This is usually time for an employee to research and complete each order as well as lost time they could have been working on something else. It is also common practice to know what others are charging. This helps to keep in compliance with “reasonable”. Ultimately, you can charge whatever you want, as long as it is “reasonable”.
This is one law that can vary greatly from state to state. States such as Nevada, Florida, and Texas have laws specifying amounts that can be charged. For example in our home state of Nevada, we have NRS.116.4109 which states:
"In preparing, copying, furnishing, or expediting or otherwise providing any document or other item pursuant to this section, an association, or entity related to or acting on behalf of an association, shall not charge a unit’s owner, the authorized agent of a unit’s owner, a purchaser or, pursuant to subsection 7, the holder of a security interest on a unit, any fee: (a) Not authorized in this section; or (b) In an amount which exceeds any limit set forth in this section."
6. Can I offer a bundle? Sometimes, but we feel it is never a good idea. California CIVIL CODE SECTION 4525-4545 4530.(b)(5) state law made bundling of certain documents illegal. Beyond the legality, this issue with bundling is in order to offer a bundle you must offer the inverse. By offering each individual document you cannot ensure that all required documents are purchased. You can read more on bundling here.
So how did you do? A’s for everyone? This is meant to be an overview or summary of what Civil Code §4525-4545 has to say about resale documents. Are you, your company and/or your association in compliance? Whether your office processes these documents internally or you use a third party for this service, please review the law yourself or consult with your legal counsel to make sure that your document delivery process “passes the test”. For your specific state laws feel free to reach out!
Have a question or want to know how GetDocsNow handles the legal aspects of resale documents? Click here to find a time to talk, or email me at bgreene@getdocsnow.com