There is a lot more that goes into selling a house in an HOA than one might think. Sellers must prepare certain documents and make certain disclosures to potential buyers prior to closing. This is because not everyone wants to live in a community managed by a homeowners association. Some states even mandate sellers to make certain HOA disclosures.
Selling a House in an HOA: How It Differs From Other Sales
In 2021, the Community Association Institute’s Statistical Review found that there were 358,000 community associations in the U.S. This number equates to 27.7 million housing units and 74.2 million residents. With HOAs making up a huge chunk of the country’s communities, homebuyers will naturally encounter an association at some point in their search.
The sale process may be a little different for sellers who already own homes in HOAs. Homes in HOA communities are bound to certain covenants and restrictions. For instance, an HOA may prohibit an owner from painting their home a certain color. Many associations also impose architectural standards that require owners to secure approval before making any architectural modifications or additions. This can include adding a shed, changing the patio, or even replacing a door.
While HOAs help enhance curb appeal and preserve property values, not everyone is suited for the HOA lifestyle. Some buyers may not want to live in an association with abundant rules and regulations. These rules serve to maintain the character and quality of living in the neighborhood, but some may deem them suffocating.
For this reason, a seller must practice transparency when putting their house up for sale. It is important to freely offer information regarding the HOA, including the fact that the home belongs to an HOA community. A good way to narrow down your pool of potential buyers is to disclose the existence of the HOA right from the start. Advertisements and property listings should include this information.
After accepting a buyer’s offer, you must then provide certain HOA documents. Your buyer has a right to know how the HOA operates, what restrictions are in place, and whether any outstanding debts are associated with the home. By reviewing these documents, your buyer can make an informed decision.
Selling a House in HOA Requirements
A homeowners association is not a party to a home sale between a buyer and a seller. Thus, it is the seller’s duty to provide disclosure documents to the buyer. In some states, such as California, it is even required by law for the seller to disclose certain documents to the buyer.
Even when your state does not require it, it is best to provide disclosure documents when selling a house in a homeowners association. The most common documents sellers must disclose include:
- The homeowners association’s governing documents, including the CC&Rs, bylaws, and operating rules;
- Recent financial statements and reports of the HOA, including annual budgets, reserve reports, and outstanding loans;
- Certificates of Insurance;
- Amount of HOA dues or fees, including the schedule of payment;
- Transfer fees or capital contribution fees, if any;
- Code violations, if any;
- The statement of account related to the property being sold; and,
- Recent meeting minutes.
Reviewing the association’s governing documents will allow the buyer to determine whether the HOA is a good match for them. If they dislike the HOA’s restrictions, they may change their mind about the sale. The same idea applies to a review of the association’s financial statements. These reports will give the buyer a glimpse into the financial condition of the HOA. If the HOA is not doing well financially, that could be a sign of a poorly managed association.
How Long Does It Take to Request Disclosure Documents?
Since many documents are involved, it takes some time to gather all the required disclosure documents. Sellers should allocate at least 10 days to secure all of these documents. Sometimes, an HOA may not respond quickly to a seller’s request, thereby extending the waiting period.
Who Pays for Disclosure Documents?
Disclosure documents are often extensive, so they come at a cost. Homeowners associations will often charge money to produce these documents, though some states place a cap on these fees. That said, sellers should prepare to pay a few hundred dollars to assemble a disclosure packet.
Sometimes, a seller can negotiate with a buyer and ask the latter to cover the cost of the disclosure documents. But, this may not be permitted everywhere. For example, California Civil Code Section 4530(b)(8) states that it is the seller’s responsibility to pay the fee.
There is a way to save money on these documents, though. If your HOA maintains a website, there’s a good chance several of these documents are readily available there. Thus, you can send the documents electronically — if your local laws allow electronic disclosures — or print them yourself.
Who Settles Unpaid HOA Fees When Selling a House?
Selling a home does not automatically rid the seller of any outstanding debts to the HOA. If the seller or current owner has unpaid fees, those fees are their personal liability. In most cases, you can’t close the sale if the title is not cleared of any debts or liens. The seller must settle the unpaid dues or use the money earned from the sale to cover them.
What About Transfer Fees?
Some homeowners associations will impose transfer fees upon a change of ownership. The seller is often the one who pays for this during closing. However, this is not a hard and fast rule. The seller may negotiate with the buyer on who has to pay for these fees.
These fees cover the costs of transferring ownership records, preparing and distributing documents, updating databases, preparing amenities passes, changing security codes, and other administrative costs.
Transfer fees vary wildly from HOA to HOA. Some associations charge a flat fee while others charge a percentage. Other associations may even charge both a flat fee plus a percentage of the sale. It’s important to determine how much these fees are so the seller knows what they might have to pay.
Is an Inspection Necessary?
Many homeowners associations will require homeowners to schedule a compliance inspection before moving out. This is to ensure that the home complies with all the community’s restrictive covenants and bylaws. Often, the responsibility falls on the seller. They must coordinate the inspection with the architectural review committee or HOA management company.
Can an HOA Prevent Me From Selling My House?
Because homeowners associations have many restrictions in place, you might wonder if they can also restrict your sale. Is closing without HOA approval possible?
An HOA cannot force a seller to stop the sale or sell the house to a different buyer. Unless HOA approval is also legally permitted and part of the deed restriction, an HOA may not impose such a requirement. Florida is one place where an HOA may approve or deny a buyer, though it cannot do so on a discriminatory basis.
But, an HOA may prevent you from selling a home with HOA violations if those violations become liens. The same thing goes for a home with outstanding dues or assessments.
Thus, a seller must ensure their title is free and clear before selling their home. That means settling any overdue fees and remedying any ongoing violations. After all, no buyer will want to purchase a home that comes with baggage.
Frequently Asked Questions
When selling a home, homeowners in HOA communities must know what questions might come their way. Which questions do buyers often ask about HOA living? Here are some questions to prepare for.
Can HOA Kick You Out of Your House?
HOAs cannot evict a homeowner from their property like a landlord. This is because homeowners are not tenants. If the resident has violated HOA rules, the HOA’s power is to impose fines. However, they may place a lien on the property and foreclose the home under certain circumstances.
Can Homeowners Association Take Your House?
If a resident is delinquent, some HOAs may be able to foreclose homes to pay the resident’s unpaid dues. However, this power is usually only granted if the governing documents and state law allow.
Can HOA Force You to Pay Fees?
Homeowners are obligated to pay HOA dues and fines. If homeowners refuse, the HOA may be able to place a lien on the property. At worst, they can even foreclose the home to force homeowners to pay their fees. Some HOAs are also allowed to include fines for CC&R violations as part of the lien.
Can HOA Make You Move?
If a homeowners association places a lien on your property, can an HOA force you to move? Yes, they can. The HOA can take the home to pay for the unpaid fees and force you to move. This is true even if the homeowner is updated on all their mortgage payments.
A Worthwhile Investment
Selling a house in an HOA does come with its fair share of challenges. Sellers, though, should not feel discouraged. Homeowners associations have a positive impact on curb appeal and property values. While some buyers may not feel the HOA life suits them, some prefer and even actively search for homes in HOAs. Just make sure you disclose the right documents.
Clark Simson Miller is an HOA management company that helps communities and homeowners handle home sales. Call us today at 865.315.7505 or contact us online to learn more!
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