Selling your home can be long and arduous, especially if you belong to a homeowners association. There are several things you must consider, including the HOA demand fee. This fee is vital in any real estate transaction involving an HOA community. Homeowners should familiarize themselves with this fee and what it entails for a smooth sale.
What Is an HOA Demand Fee?
An HOA demand fee is the outstanding fee or debt that must be settled with a homeowners association before the sale of a home. Demand fees, which are typically included in the payoff demand report, generally consist of the following:
- Unpaid homeowner dues to the HOA
- Late fees, interest, and other collection costs
- Outstanding fines for rule violations
- Ownership transfer fees
- Move-in fees for the buyer
Understanding How Homeowners Associations Work
When homeowners buy a home in an HOA, they agree to fulfill the obligations outlined in the governing documents. Paying regular dues to the association and following the association’s rules are two prime examples of these obligations. If a homeowner defaults on their dues or fails to settle fines due to rule violations, the HOA can place a lien on the home.
This lien signifies the association’s legal hold on the property, allowing it to halt pending sales until the current owner settles their balance. In most states, the association can also foreclose on the lien to keep the account current.
HOA Demand Fees and the Home-Selling Process
Buyers and sellers must go through mountains of paperwork in a home sale transaction. With the help of real estate agents and lawyers, they must deal with title issues, taxes, escrow, and mortgage requirements. When an HOA is involved, there are extra steps to take.
1. Payoff Demand Report
First, the escrow company will ask the seller to produce a payoff demand report. You can request this from your HOA. A payoff demand report includes all the HOA demand fees the property owner owes the association at closing. Ordering this report usually requires a fee, so sellers must prepare themselves for this expense.
2. Resale Certificate
In addition to the payoff demand report, sellers must produce a resale certificate. A resale certificate contains crucial information about the association. It typically includes the following documents:
- Governing documents of the HOA (CC&Rs, bylaws, operating rules, etc.)
- Financial records (financial reports, ledgers, reserve funding, insurance policies, etc.)
- Board meeting minutes, notices, and election records
- Membership lists
3. Report Delivery
After the request, the association will deliver the documents to the escrow company. If an HOA has a management company, the management company will usually take care of such requests.
4. No Interest Held
The escrow company will then receive the reports from the association. These reports should certify that the HOA will not hold any interest in the home and that the fees will be settled at closing.
5. Demand Fee Calculations
Finally, the escrow company will calculate the fees the buyer and seller must pay individually using the reports. The company will include the HOA demand fee at closing. More often than not, the seller is responsible for settling all of the associated fees. However, in some cases, the seller and buyer may negotiate the fees, with the latter covering a portion.
Are HOA Demand Fees Required?
State disclosure laws usually require real estate transactions to have resale certificates and demand payoff letters. In North Carolina and South Carolina, sellers must also provide a disclosure statement before entering a real estate contract. If the seller has no outstanding debts to the HOA, demand fees should not be a problem.
Resale certificates and demand payoff letters serve a specific function: to protect buyers’ interests. With no such documents, a seller could easily pass on outstanding obligations to the buyer. The buyer will then have to settle the seller’s unpaid debts to the association even though they had nothing to do with the debts in the first place.
Buyers should take caution when examining their prospects. If a seller can’t provide a resale certificate or an HOA demand statement, it is best to rescind the offer to purchase the home. Pushing through with the sale without these documents could jeopardize the buyer’s financial interests.
Furthermore, buyers typically have the option to back out of the sale within a set period following the receipt of such documents. The resale certificate and demand payoff letter should indicate the property’s financial condition and the HOA. If something seems amiss upon review, buyers can choose not to continue the sale to protect their interests.
Can an HOA Stop You From Selling Your Home?
In a word, yes. Homeowners associations in most states can place a lien on a home if the owner falls behind on their dues. This lien would prevent a homeowner from selling their property until the debt is settled.
In North Carolina, homeowners associations can charge reasonable late fees and collection costs, as per the North Carolina Planned Community Act (Section 47F-3-102). Associations in North Carolina can also place a lien on a home if dues go unpaid for 30 days. Associations must file a claim of lien with the office of the clerk of the county’s superior court. Afterward, associations can foreclose on the lien to satisfy the unpaid dues (Section 47F-3-116).
Similar laws exist in other states as well. However, to avoid potential liability, it is best to check the laws in your state and your association’s governing documents. It is always a good idea to consult a lawyer when in doubt.
Benefitting From Professional Assistance
An HOA demand fee can confuse many homeowners attempting to sell their homes. Fortunately, with the right real estate agent, they can make the process smoother. Similarly, homeowners associations can easily handle demand payoff letters and resale certificates with the help of an HOA management company.
Clark Simson Miller offers collection and back-office administration services to HOAs and condominiums. Call us today at 865.315.7505 or contact us online to request a proposal!
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