Board members should familiarize themselves with HOA disclosure documents. When someone requests them, the board should be able to prepare them without a sweat. Unfortunately, when the board doesn’t have a clue what these documents entail, things can quickly become a mess for everyone involved.
What are HOA Disclosure Documents?
Buying a home is one of, if not the biggest, investments anyone can make in their lifetime. Since it’s such a crucial and expensive decision, buyers should thoroughly investigate a home before committing to a purchase. This is where disclosure documents come in.
What are disclosure documents? Simply put, these are documents that make up the information package that an HOA or condominium provides during a sale. They explain what the association is, how it operates, and what its regular or special fees are. These documents also detail what obligations the new owner will have.
What is the Purpose of a Homeowners Association Disclosure?
The goal of HOA disclosure documents is pretty straightforward. These help keep everything transparent for everyone involved.
Buyers are made aware of the same rules, costs, and expectations as everyone else. Instead of relying on hearsay, they get it straight from the horse’s mouth.
For Buyers
Buyers read through the disclosures to understand what it means to live in the HOA community. While the home comes at a price, there are also other costs to pay. Associations cover shared expenses, and homeowners contribute to these expenses through regular dues.
Additionally, associations are known for enforcing strict rules regarding owner behavior and architectural standards. If a buyer doesn’t agree with these rules or costs, they can back out of the sale.
Finally, the disclosure documents reveal the association’s financial viability. It can also reflect the community’s future financial stability. Poor financials will inevitably lead to special assessments and higher dues.
For Sellers
Sellers need the disclosure documents to facilitate the sale. Since they want to sell their home, they must follow all requirements, including providing these documents. If they fail to do so, it can delay the sale, or buyers may choose to back out.
For HOAs
Apart from buyers and sellers, the HOA itself also benefits from disclosure documents. Disclosures can help reduce disputes by setting the rules and expectations from the beginning.
When owners know what they agreed to in the first place, the board can spend less time dealing with conflicts. Residents also can’t claim that they didn’t know about the rules.
What Should HOA Disclosure Documents Include?
According to Section 55.1-2310 of the Virginia Resale Disclosure Act, resale certificates should include the following:
- Who prepared the resale certificate, and how to contact them.
- Copies of the HOA’s governing documents and rules.
- Whether there are any restrictions on selling or transferring the unit.
- How much the regular HOA dues are, when they’re paid, and whether the seller owes anything.
- Any other fees owners must pay.
- Whether owners must pay fees to any other organization tied to the community.
- Details about any special assessments, including how much they are and whether the seller still owes anything.
- Any major capital projects that the HOA has already approved.
- How much money is in the reserve fund, and which projects are those funds earmarked for?
- The most recent financial statements.
- The current operating budget.
- The current reserve study or a summary of it.
- Any unpaid court judgments against the association and any lawsuits the HOA is a party to.
- A summary of the HOA’s insurance coverage and what owners must insure themselves.
- Whether the unit has any known violations of HOA rules or has received violation notices.
- Whether the HOA has received notice of any government code violations affecting the unit or the community that haven’t been fixed.
- Minutes from board meetings in the last six months.
- Minutes from the most recent annual member meeting.
- If any common areas are on leased land, how long the lease lasts, and details about renewals.
- Any rules limiting who can live in the unit based on the number of occupants or age.
- Rules on displaying the U.S. flag.
- Rules on installing solar panels.
- Rules on posting signs (political, for-sale, etc.).
- Any parking or vehicle rules.
- Restrictions on home-based businesses.
- Rules on renting out the unit.
- For co-ops, information about whether owners can deduct property taxes and interest for federal tax purposes.
- Whether any part of the common area is currently being sold or mortgaged.
- Any known approvals from mortgage giants (like Fannie Mae or FHA) that affect lending in the community?
- Proof that the HOA is in good standing with the state by filing its annual report.
Additionally, the HOA can’t require the buyer’s name to appear on the resale certificate.
Is an HOA Resale Disclosure Certificate Required in Virginia?
Yes, resale certificates and disclosures are required under Virginia law. According to the Resale Disclosure Act, any resale of a unit in a common interest community must:
- Disclose that the unit is located in such a community;
- The seller or their agent must secure a resale certificate from the association and give it to the buyer or the buyer’s agent; and,
- The buyer has a right to cancel the contract in accordance with Section 55.1-2312.
If there are changes to the resale certificate, the buyer or their agent may ask for an updated one. That said, the buyer’s right to obtain the resale certificate and their right to cancel are forfeited if they don’t exercise them before the settlement.
Section 55.1-2309 sets out the delivery requirements for the resale certificate. Associations have 14 days to comply with a request to prepare this certificate and deliver it to the seller or their agent in printed or electronic form.
Can HOAs Charge a Fee for Disclosure Documents?
Yes. According to Section 55.1-2316, associations may charge fees to cover the preparation and delivery of the resale certificate and its updates. They can also charge fees for unit inspections that must be included in the report.
The Common Interest Community Board (CICB) sets the maximum amounts HOAs can charge. This board must also update the fee caps at least every five years.
Additionally, associations must publish a fee schedule for:
- Resale certificates
- Updated resale certificates
- Financial updates
- Unit inspections
- Post-closing costs
Associations may only collect any of these fees if they:
- Is properly registered with the CIC Board,
- Has filed its most recent annual report and paid its annual fee,
- Is current on any other assessment that it owes to the CIC Board, and
- Offers the resale certificate electronically.
Who Pays for HOA Disclosure Documents?
The seller typically pays for the cost of the main resale certificate and any relevant inspection fees. The seller also pays for any financial-only update. As for the updated certificate, the person requesting it must cover the cost.
Virginia law allows associations to charge a one-time post-closing fee or initiation fee. This fee covers any setup or administrative costs associated with onboarding the new homeowner into the HOA’s system. The buyer usually covers the cost of this fee.
Getting Professional Assistance
The board is responsible for preparing and delivering HOA disclosure documents. But navigating state requirements can come as a challenge, especially in larger communities. Enlisting the help of an HOA management company can ease this burden.
Keymont Community Management offers expert management services to associations in Virginia, Maryland, and Washington, DC. Call us today at 703.752.8300 or request a proposal to start your journey!
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