Does YOUR HOA Have These Disclosures Ready For Buyers?Aug 30, 2021
By Kelly G. Richardson, Esq., CCAL
California Civil Code Section 4525 requires specific important disclosures be provided to members upon request, to give to prospective buyers. Well-run HOAs should have these many disclosures readily available. Here is a checklist for buyers, sellers, and managers:
CC&R’s, bylaws, rules/regulations, Articles of Incorporation (or statement of non-incorporation), and Condominium Plan or Subdivision Map (not mandatory).
Annual Budget Report (multiple items, see Civil Code 5300).
Annual Policy Statement (multiple items, see Civil Code 5310).
Assessments: Regular, special and any schedule future assessments.
Delinquent assessments, unpaid fines, and unresolved violations.
Disclosure if age-restricted community.
Construction defect lawsuit information regarding defects disclosed to builder and (if settled) plans to repair them.
The governing documents and any amendments must be provided, including any amendments to these documents. The Condominium Plan or Subdivision Map is not legally required to be disclosed but is an important document.
Financial Documents and information
The Annual Budget Report contains important information regarding the association’s finances.
For example, is the association following the recommendations of its reserve study preparer, or is there little money in the reserve fund account, exposing the HOA to future major borrowing and consequently exposing members to future major special assessments? The HOA is required to have a written plan to become more adequately funded, and that plan must be disclosed annually to members.
The Annual Budget Report also includes a summary of insurance. Does the HOA have dishonesty insurance or earthquake coverage?
Buyers must be told what are the current regular assessments and any special assessments and also if there any future assessments approved but not yet due.
Is the residence being purchased not a good HOA member? The association must disclose any assessment arrearages, unpaid fines, and any unresolved violations involving the property.
Some associations are age-restricted communities established for senior living. Such restrictions must be disclosed.
If the HOA has sued the builder for construction defects, there should be a defect list, and if the case ended, a written disclosure of the association’s plan to deal with the listed defects.
The association can only charge its actual reasonable cost to make the copies, which must be provided within ten days of written request. Not all HOAs are well-managed, and the inability to comply with the disclosure requirements could indicate a disorganized or poorly run HOA. Realtors® should send this request very early in the selling process to avoid “rush” fees and to allow time in case the HOA is late. The person handling requests for these disclosures may be an overloaded manager or a homeowner volunteer struggling to take care of association paperwork in addition to their daytime jobs.
Other Helpful Documents
In addition to the specifically required documents, prospective buyers may seek the:
Latest monthly financial reports,
Last three board meeting minutes; and
The latest reserve study.
These are not mandatory disclosures but provide insight into the association’s operations.
Read Civil Code Sections 4525, 5300 and 5310 on the official state web site at https://leginfo.legislature.ca.gov.
The law provides valuable information for HOA homeowners and prospective buyers. HOAs and their managers should be prepared to provide these disclosures. Buyers should make use of the information and become more informed buyers and better members of their new HOA community.