Homeowner’s or Property Owner’s Associations

Homeowner’s or Property Owner’s Associations (HOA/POA) – Understanding how they come into play when buying or selling a residential property.

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.

When purchasing a home in a residential community with an HOA or POA, it is important that you are aware of the membership requirements.  Most communities have mandatory membership, but there are a few that have voluntary membership.  The type of membership should be disclosed in the body of the purchase agreement.  In Texas, it is disclosed 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.

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.  The Resale Certificate typically must be ordered from the HOA/POA by the seller, and usually payment must be received before the HOA/POA completes and releases the certificate.  It discloses many important facts about the property, such as any lawsuits pending, transfer fees, processing fees, annual assessment amounts, special assessments, any reserve fund fees, etc.  In my opinion, the Resale Certificate is the most important document of all HOA/POA documents for a potential buyer.  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” (the Addendum) 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 have a mandatory Certificate of Compliance, or both, prior to selling.  The use of the Addendum should be used to specify the documents requested and the obligations for payment.

Third – The Addendum is a request 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 real estate agents.  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 the 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 the Addendum is specifically designed for the buyer to complete and make their request to the seller.  The Addendum has negotiable items within the context of the form, such as who pays and should be treated as such.  In my opinion, I feel a seller should 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.