Homeowners’ Associations: How Can They Affect a Transaction?

Mon, 05/02/2022 - 6:26am

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 an 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 show a buyer the restrictions that an HOA may have in place and they deliver financial information to the buyer to show what their anticipated costs will be with homeownership.  These documents also confirm if the seller is paid current.  

Early in the closing process the title company, on behalf of the seller or buyer depending on the addendum instructions, will request the resale certificate and supporting restrictions, bylaws and insurance from the management company.  Most HOAs require payment in advance to prepare these documents and the HOA addendum requires that these fees be paid prior to ordering the resale certificate:

How Long Does It Take To Get a Resale Certificate? 
Every management company operates on their own schedule and since they are not a party to the contract they are not bound by the delivery dates that real estate agents negotiate in the contract for delivery requirements.  Both selling and listing agents should understand that a failure to timely deliver the resale certificate gives the buyer the right to cancel the contract.  Whether it is the buyer or seller that is responsible for ordering the resale certificate, failure to obtain timely is a cancellation contingency: 

What Things Are Important For A Real Estate Agent To Know Or Do When It Comes to HOAs?
First, when filling out the Addendum for Property Subject To Mandatory Membership In a Property Owner’s Association, a real estate agent should put a reasonable time frame in that allows for title to obtain the resale certificate from the management company.  If a contract has too short of a timeline in this addendum then there is a good chance the buyer can terminate the contract due to failure to deliver the resale certificate. 

Second, your closing teams at Texas National Title will warn you up front if the management company has communicated to us that they cannot deliver by the due date.  When you receive these notices it is important that you review your file to see if an amendment is necessary to preserve the interest of your clients.  

How Does a Real Estate Agent Find The Management Company? 
What if a Client Wants HOA Fees?

Real estate agents are often asked for rough estimates from their clients as to what the expected fees will be for a particular property.  Many times real estate agents are not sure where they can obtain this information and historically there has not been a database that was available to search management information for any given property.        

During the 87th regular session, the Texas legislature passed SB 1588 which amended Chapter 209 of the Texas Property Code governing certain property owners ‘ associations to address a number of HOA-related issues, including providing greater transparency in HOA operations and leadership. HOAs are required to maintain certain information on a “management certificate.”  The required items include the name and mailing address of the HOA, the name and contact information of the person managing the HOA, and the website address used to access the HOA’s dedicatory instruments.  The law also requires HOAs to record their management certificates (or amended management certificates) with the county clerk in the county of record where the HOA is located.  This new law requires HOAs to also electronically file these certificates (and amendments) with the Texas Real Estate Commission (TREC).

Going one step further the law now requires TREC to maintain a website to provide the public access to these certificates.  That website can be found here: www.hoa.texas.gov. This website provides both a means for HOAs to upload their management certificates to a central database and a means by which the public can search for and access the management certificates after they have been uploaded.   The deadline for all HOAs to file their management certificates with TREC was June 1, 2021.  

What About Fees? Who Pays For The HOA Fees?
To answer this lets look again at the Addendum for Property Subject To Mandatory Membership In a Property Owner’s Association

Paragraph A is the paragraph where the parties negotiate who is responsible for payment of the “Subdivision Information” or what is commonly known as the “Resale Certificate.”  This paragraph has not changed.  

Paragraph C underwent a big change last year and under the revised form deposits and reserves are no longer a separate fee group to automatically be paid by the buyer.  Now they are included in all remaining HOA fees (meaning all fees from the HOA excluding the actual resale certificate) to be paid for by the seller except for any amount negotiated between buyer and seller and written into Paragraph C as shown below:  

Practically this is a big change from the older version of the contract addendum because it reclassifies deposits and reserves as a seller fee except for the negotiated dollar amount shown in Paragraph C.  Real estate agents need to be careful in reading this paragraph during negotiations and understand the financial impact to their buyer or seller before the contract is signed.  An agent working up a seller or buyer net sheet also needs to take this change into account when preparing fee estimates.  


Can The Clients Waive Getting a Resale Certificate? 
Paragraph 4(A) provides for the buyer to waive a resale certificate entirely*****:
 
***BUT WAIT! There are complications with choosing this option.  
First, many management companies will require a full resale certificate to transfer the account to the buyer, even if the parties try to waive it.  Once the buyer closes they could be billed for all fees associated with the transfer and resale certificate if not handled at closing or in the contract.  

Second, if the buyer does not get the resale certificate they have no opportunity to discover what the fees will be post-closing or confirm that the seller is current on their HOA dues.   
 
Third, a title company cannot issue important title policy endorsements that lenders generally require in order to give the loan so the loan may not be approved if a certificate is not obtained.  

Moral of the story – before agreeing to waive the resale certificate there are many factors that need to be considered.  
Working with a knowledgeable title company is the key to success!  Our escrow teams are the experts that you need and the partners that you can trust.  Any time you have questions please do not hesitate to contact us!