Most planned residential communities have a Homeowner’s Association with Restrictions, Covenants, and By-Laws that are designed to keep the original integrity of the neighborhood in good standing; and most do an excellent job of doing so, especially in our area.
When purchasing a home in a residential community with an HOA or POA, it is important that you are first made aware of the membership requirements. Most communities have mandatory membership, but a very select few have voluntary membership. The type of membership should be disclosed in the body of the purchase agreement, such as in paragraph 6.E. (2) of the One to Four Family Residential Contract (Resale) promulgated by the Texas Real Estate Commission (TREC) form # TREC 20-11. It is extremely important that the purchaser read and fully understands this paragraph.
Within the body of the above mentioned paragraph, it states that the buyer has the right to obtain a copy of the Restrictions, Covenants, Regulations, and By-Laws, which are all readily available at the County Clerk’s office as publicly recorded documents. It also mentions a Resale Certificate, which includes along with other things the amount of assessments and frequency of such assessments, any lawsuits pending, etc. In my opinion, the Resale Certificate is by far the most important piece to these documents; for it may disclose a transfer fee, a processing fee, the annual assessment, a special assessment, a reserve fund fee, etc. These fees will most likely be payable upon closing of the property, or at least prorated in some instances. At the bottom of this paragraph, in bold type, it states that if the Buyer is concerned with any of these items, then the TREC promulgated form #36-7 “Addendum for Property Subject to Mandatory Membership in a Property Owner’s Association” should be used.
Herein lies a few common misunderstandings of the paragraph in the purchase contract and the use of the Addendum:
First – the paragraph in the purchase agreement does not specify who pays for the retrieval and delivery of the documents. There is generally a fee within the range of $150-$500, depending on the community and the documents requested. Therefore, the Addendum should be used to specify what is requested and who pays, so there is no misunderstanding.
Second – Many communities make it mandatory for property owners to obtain the Resale Certificate – and some also have a mandatory Certificate of Compliance (such as in Greatwood) – that the seller must obtain and deliver to a potential buyer prior to closing. Again, the use of the Addendum is almost required to specify the documents requested and the obligations for payment.
Third – The Addendum is a notice from the buyer to the seller of the documents requested and who is going to pay for these documents – not the other way around. This is by the far the biggest abuse of the use of the form by Realtors, especially in our area. Many listing agents/brokers will pre-fill the Addendum form and supply it with the seller’s other disclosures. It is not a disclosure – disclosure was satisfied in the paragraph of the purchase agreement – this is a notice from the buyer to the seller and should be completed by the buyer, not the seller, and presented with the offer; just as it states in the paragraph of the purchase agreement in bold type. Whenever I see an Addendum form pre-filled by a listing agent, I feel the agent is violating many of the National Association’s Codes of Ethics and misrepresenting the seller’s best interest. I will not go into detail, but this form is specifically designed for the buyer to make his/her request to the seller to supply the documentation. The Addendum has negotiable items within the context of the form, such as who pays, and should be treated as such. Personally, I feel a seller should feel obligated to readily supply a potential buyer with all the requested and required documentation at the seller’s expense. It should be calculated as part of the seller’s estimated closing cost; and a good real estate agent/broker will inform the seller of these potential expenses up front when taking the listing agreement.
For more commentary from Julius, pick up a copy of his book entitled “The Truths and Myths of Real Estate” – available at www.lulu.com
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