HOA C.U.R.S.E. #6: Association not required to disclose construction defects

By Deborah Goonan, Independent American Communities

HOA *C.U.R.S.E. – Consumer Unfriendly Regulatory Statute Example

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If you’re a home buyer, you should be familiar with what is called a “Seller’s Disclosure.” That’s a state-mandated questionnaire completed by the home seller, for the purposes of obtaining a standardized written disclosure of defects and issues involving the home that would affect its value or the ability to close sale with a clean title.

State real estate sale disclosure requirements vary, but in the state of California, the Department of Real Estate has published a 79-page document explaining exactly what’s required by law. The California Association of Realtors also provides a 38-page Summary Disclosure Chart.

But despite extensive disclosure requirements of individual sellers, you may find minimal disclosures available from the homeowners’, condominium, or cooperative association to which a home belongs.

You would think that the Association would be required to provide a prospective buyer with important facts regarding construction defects to common elements and pending litigation.

But, in fact, the Association is not required to disclose anything. The burden of disclosure falls to the seller of the home or unit.

The following link to an attorney blog from the state of California applies in other states as well.

A Duty To Disclose Construction Defects to Prospective Buyers?

Excerpt:

The Appellate Court also agreed with the trial court in that the Davis Stirling Common Interest Development Act, specifically Civil Code §1365, 1365.5 and 1368 (now amended Civil Code §5300, 5500 et seq., and 4525), already lists the escrow disclosure requirements of the homeowners association, and that such laws do not require a voluntary disclosure of the existence of construction defects or pending litigation.

Notwithstanding Kovich v. Paseo Del Mar Homeowners’ Assn., homeowners associations are still under the obligation to disclose construction defects and pending litigation to its members. If a member is selling his/her separate interest, it is his/her duty to disclose to the buyer. The buck stops with the seller with this disclosure burden.

 

Of course, this is very bad for the home buying consumer, who will ultimately find out the truth after the sale. What if the seller does not tell the buyer about defects and/or pending litigation? Suppose the HOA board fails to communicate with members on this issue? Perhaps the seller has no idea that there is a problem, if the defect does not obviously or directly affect the unit being sold. Or if the unit is an estate, the executor-seller may be unaware of ongoing issues with defects or pending lawsuits.

A buyer is taking on all of the financial liabilities of the Association when purchasing a home, condo, or apartment in an Association Governed Residential Community. Once that buyer becomes a homeowner, assessments and any future increases are part of the deal. The homeowner is also at the mercy of how the Association handles the slow and painful process of investigating, mitigating, litigating, and repairing construction defects.  So why shouldn’t that buyer be entitled to full disclosure from the Association before closing the sale?

 

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