Real Estate: Perform due diligence before buying a condo.
Question: We recently acquired a condo, but even with a 60-day escrow, we felt the purchase process was too fast. We wanted to take our time to read and review everything before signing, but that didn’t happen. The seller imposed time restrictions on all of our replies and if we did not respond by those deadlines, the “deal was off.” Once in escrow, we had to agree to pay extra or forfeit the sale if we were the cause of a delay in closing.
Later during escrow, we received an overwhelming stack of documents from the homeowners association. It was not possible to perform our own due diligence, let alone obtain legal counsel to review the morass before the closing deadline. Two months after we moved in, we began reading everything we signed. The association had an owners only website for access to its governing documents. Because we were buyers at the time of sale, we did not have access to the website.
Once we compared the website’s governing documents, we saw they differed from what the escrow company provided us. We also learned that the seller voted to approve a $10,000 special assessment becoming effective a year after we closed escrow. The result of that vote was not tallied until two months after escrow closed. We feel we were taken advantage of. What can we do? What could we have done differently?
Answer: You were not “taken advantage of.” You had inferior bargaining skills compared to your counterpart. The time to read everything is always before you sign.
When buying into a common interest development, you are buying more than just the property: You are getting all of the restrictions and liabilities that come with it. You probably wouldn’t buy a house without walking through it or conducting a professional inspection, but too many buyers fail to properly review governing documents describing limitations on use prior to making an offer.
Buying and selling property in a homeowners association is complicated, and sellers want to highlight the most attractive elements of their properties. That can leave little time to get through the association’s governing documents and meeting minutes — meaning less of a chance for buyers to find something they don’t like.
In these types of transactions, buyers must be assertive early in negotiations. Offers and counteroffers should contain more than just a dollar amount. They should include clauses requiring delivery of certain documents by a specific date, and make the purchase contingent on acceptance and approval of those items. Too many buyers go along with whatever their real estate agents say and are too accepting of claims that things are done a certain way because it is the “industry standard,” down to the preprinted real estate forms with an “X” already in the box. Those forms are meant to protect the transaction agents and brokers, not buyers and sellers.
Nothing prevents a buyer from making an offer contingent on whether there are any foreseeable special assessments expected within a certain number of years from the date of sale, or stipulating that the seller must agree to inform the buyer of any vote that may take place during the process, and make the sale contingent on the buyer’s approval of that vote. Buyers need assurances that sellers will not bind the property during this time without the buyer’s consent.
Civil Code 4525 lists documents that sellers must provide to prospective buyers, but that list is not exhaustive of what buyers need to make an informed purchase. Only changes in the association’s “current regular and special assessments and fees which have been approved by the board” must be disclosed, as you learned. Association assessments and maintenance that are in the early stages of discussion, in the process of approval or that have been voted on but without a tally of votes require the buyer to do more digging and allocate more time to discover. Address these issues in the offer and place them in the escrow instructions too.
Similarly, although a seller must provide a purchaser with a copy of board meeting minutes conducted over the previous 12 months, only minutes that were “approved and signed” by the board must be provided — and even then, “only after a request” by the prospective purchaser. If the buyer is unaware of these nuances and the industry’s preprinted sales form does not provide this option, the buyer will lose out. And even then, it’s a good idea to request minutes spanning two years.
It’s also a good idea to shift the burden on the seller to have him or her guarantee that no special assessment votes are pending at the time of the seller’s acceptance of the offer and that there will be no increase in monthly dues for a year. Nothing stops buyers from requiring a seller to cover assessments and related costs that come up through such a guarantee. These contingencies should be upfront in the offer — by the time escrow opens, it may be too late to make these demands.
And during escrow, while the seller must provide a copy of the association’s current governing documents, we’re hearing of ever-more sloppy and inaccurate copies of governing documents issued by associations. An accurate copy should be available at your county recorder’s office in order to verify what you have received. If they are not identical, contact the title insurance company and your lawyer.