Homeowner’s Associations: Understanding Their Role And Possible Delays In The Closing Process

Wed, 08/12/2020 - 9:45am

There are many reasons why a real estate closing can be delayed.  Like cogs and gears in an intricate clock, there are so many parties involved in a successful real estate transaction. In visualizing this analogy, it should be understandable that delays can happen when some of the moving parts aren’t working in optimal conditions. 

As a people, we’re living and working through a pivoting time in history. The coronavirus pandemic has delivered a multitude of frustrations and delays around the world. Along with the personal toll the virus has taken on individuals and families, the pandemic’s impact has shaken nearly all sectors of American economic life, and community associations are no exception. 
What is an HOA?
A homeowner’s association (HOA) is an organization in a subdivision, planned community, or condominium building that makes and enforces rules for the properties and its residents. Those who purchase property within an HOA’s jurisdiction automatically become members and are required to pay dues, known as HOA fees. Some associations can be very restrictive about what members can do with their properties.

The HOA’s Role in The Closing Process
If the property being purchased has a HOA, the resale certificate, as well as the rules and regulations documents, must be ordered and delivered to all parties. These documents are important because they give peace of mind to everyone involved in the transaction – the seller is able to publicly prove their financial standing with the HOA, the buyer knows about the community they are joining, and the HOA knows that there will be no unmet financial obligations.

Early in the closing process and during the option period, the  title company representing the seller will request the statement from the HOA management office. Since the HOA’s property management company handles the accounts for the association, it will complete the certificate as a service to its clients for a fee that may vary from one community to the next.  Most HOAs require payment in advance to prepare these documents.  

The HOA Document Ordering Process:
1. The escrow team will request and collect the HOA fee  payment from the responsible party (which could be either buyer or seller - this is decided upon and clearly laid out in the initial contract of sale).   

2. After payment is received by the title company, the escrow team will overnight the payment to the HOA management company.  

3. Once the payment is received by the HOA, it can take 24-48 hours for the HOA management company to process the payment and start working on the HOA document order.

4. In a normal, non-pandemic environment, the majority of HOA management companies require a ten business day turn time to send the requested documents.

Current Reasons For HOA Document Delivery Delays
First, like so many other industries pivoting in the pandemic, some HOA management companies have reduced staff. The working staff are often now relying on third party services for assistance in their daily work. Additionally, many HOA employees are finding themselves working remotely from home.  Understandably, a dramatic change in work environment warrants the need for adaptation. These employees are faced with getting used to a new work space, a difference in technology and resources available, taking on new duties and distractions, and finally, the ever-present stress of the pandemic itself. Regardless of the reason, this shift in HOA processes has caused document delivery turn time to increase beyond the typical ten business days.

How We Can Adjust Expectations
We at TNT fully recognize the importance of delivering these documents in accordance with the contract. The challenge that title companies and realtors face is that the HOA is a third party, and not compelled to act  in a certain amount of time.  Each HOA has different delivery times and almost all of those deadlines have been pushed out due to Coronavirus.  The title company, nor the parties, can speed up their timeline.  As such, it is important that realtors protect their clients by putting a delivery date in the contract that is long enough to allow for delays by the HOA as well as the unknown component to their timeliness these days.