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By: Helsing Admin

Mr. Helsing, As I read your article the first thing that comes to mind is, “people who have nothing to hide, hide nothing!” As a victim of a dishonest HOA operation, I can assure you it is no fun being on the receiving end of the nightmares that HOAs and condos have become. If the buyer requests to know if there are loans that the HOA has taken, they should be told the truth. If the buyer asks how many rentals and foreclosures are in the HOA, they should be told the truth. If the buyer inquires as to how many pending lawsuits the HOA is involved in, they should be told the truth. To avoid answering those questions should send the potential buyer right out the gate. And the seller will not necessarily know this information if they are not on the board. It appears the California legislators need some “real life” education about HOAs and COAs so the buyers don’t walk into a hellish nightmare like I have. What it’s done for me is made me very angry and destroyed me financially …. [Proper research] could save [homebuyers] their health, wealth, and happiness because living in an HOA has proven to be a miserable experience for me and thousands of others all across the country. And it starts with the HOA or COA not legally being required to be 100% transparent.

Regards, NR

Dear NR:

I am sorry you became a victim of a dishonest HOA operation; I will take your word that you were. However, the specific examples you cite are all items the seller is to provide to the buyer, and not the HOA. Based on that information alone, it is hard to see if you were a victim of a dishonest seller or a dishonest HOA.

You are correct, if a “buyer requests to know if there are loans the HOA has taken, they should be told the truth.” However, it is the responsibility of the seller to provide that information. The association does have the duty to provide that information to all homeowners annually and to the seller on request. That information is enclosed in the “Annual Budget Report” required under Civil Code Section 5300(b)(8) which states the Annual Budget report must contain: “A statement as to whether the association has any outstanding loans with an original term of more than one year, including the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be retired.” If the seller did not give that report to the buyer (which they are required by Civil Code 4524 to do) then it would be the seller who failed, not the association. If, on the other hand, the association knew and did not inform the homeowners, then the association would seem to have failed. The point I want to make is twofold: first, you are not only correct that the buyer should get this information, that is also what the law says – and second, this is a seller’s duty (assuming they have been told) and not an association duty. The entire point of my article was to make it clear that sales disclosures are the responsibility of the seller and not the association, although the association does have a duty to disclose to the owners.

With regard to your statement that “If the buyer inquires as to how many pending lawsuits the HOA is involved in, they should be told the truth.” While this is admirable, it is also not so simple. First, what exactly is a “pending lawsuit” and how would the board know such a lawsuit was pending? At what level is a lawsuit material? Is a frivolous lawsuit that is certain to be dismissed (such as, because some homeowner disagrees with the maintenance level) something that should be disclosed and perhaps keep people from being able to sell their homes? How about a small claims action against a single homeowner refusing to pay a $200 fine? It is litigation, but is that really material? When there is actual litigation that may have a material effect on owners, most associations will ask for a legal opinion of what, if anything needs to be disclosed. Most of the time, such litigation is not material to property values. If the situation involves construction defect litigation against the developer, then disclosure is required, but short of that it is necessarily a judgment call (hopefully with legal advice) because there can be consequences for disclosing as well as for not disclosing.

Again, I am very sorry to hear you were harmed by an allegedly dishonest HOA – and I am taking no position concerning whether the cause was your association, the seller, or even a failure to read the provided documents prior to sale – I simply have no way of knowing. However, your association and all associations are required to be transparent, and the list of annual disclosures to homeowners and from sellers to buyers is very exhaustive and includes in part: the budget, multiple disclosures concerning reserves, disclosures on insurance, disclosures on loans, disclosures on special assessments, financial reports, fine policies, delinquency policies, lien enforcement, rights to minutes, alternative dispute procedures… the list is exhaustive. Most of this information is sent to the membership annually at budget time and updates as it changes. It is mostly contained within two reports (the Annual Policy Statement and the Annual Budget Report). In my opinion, transparency is currently present. In my experience, buyers receive all this information (as do owners) but rarely read it. For all homeowners, when is the last time you read these important disclosures you are sent annually?

Newsletters are for advertising and general information by The Helsing Group, Inc. They are not intended to provide legal advice, but rather reflect our opinions as Community Association managers and Consultants. Readers should not act on issues raised in our newsletters or websites without consulting legal counsel.

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