One of the major reasons that prospective condominium purchasers hesitate to buy is doubt about the finances of the home owners association (“HOA”). This is understandable. After all, if the owners association is underfunded, the buyer could be hit with a big increase in the monthly assessment or a large one time special assessment. So how is a buyer to get comfortable with the finances of the HOA?
Washington – Condominium Resale Certificate Required
In Washington, as in many other states, the buyer has a right to receive a document known as a “condominium resale certificate”(but, see below for discussion of Idaho). The seller has an obligation to provide the condominium resale certificate to the prospective purchaser. The seller, in turn, has the right to receive the resale certificate from the HOA. This series of rights and obligations is set out in RCW 64.34.425, part of Washington’s Condominium Act. Prospective buyers, please note that for condo sales in Washington where the seller is the developer of the condo project (or an “affiliate” of the developer), the buyer is entitled to receive a Public Offering Statement rather than a condominium resale certificate, RCW 64.34.405-.420.
The term “certificate” can be a bit misleading in this situation: the statute sets out 19 separate documents and pieces of information required to be included in the condominium resale certificate, and it can easily run over 100 pages total. Included are: information regarding moneys owed to or by the HOA; delinquencies in regular or special assessments; whether or not the HOA has a reserve study; the existence of any restrictions on the sale of units; and, copies of the declaration (also known as the CC&Rs) and.
While the seller is not liable to the buyer for failing to provide the condominium resale certificate, the buyer does have the right to void any purchase and sale agreement between the parties until five days after the buyer has received the condominium resale certificate. That right exists regardless of whether the purchase and sale agreement contains a buyer’s contingency regarding the condominium resale certificate. Sellers need to be aware that the HOA has up to 10 days to deliver the resale certificate after it is requested, so it is important to make the request immediately upon receiving an offer from a buyer. It doesn’t pay to order a resale certificate from the HOA any earlier, though, since some of the financial information must be no more than 45 days old as of the date the resale certificate is given to the buyer. Sellers should also be aware that the HOA has the right to charge a fee for production of the condominium resale certificate, up to a maximum of $275.
If you are a condominium owner intending to put your unit on the market, it would be a good idea to contact your HOA’s manager or bookkeeper to let them know you are intending to sell, to find out how long it will take to receive a condominium resale certificate, and to verify the fee.
If you are a prospective condominium unit purchaser, be sure to ask for a condominium resale certificate at your earliest opportunity. Then read it in its entirety, and contact the manager or bookkeeper for the HOA to ask questions, particularly on the financial information. If you have questions regarding the declaration or, consider engaging an experienced real estate attorney to help you understand these important documents.
Idaho – No Condominium Resale Certificate Required
Idaho’s Condominium Property Act, I.C. §55-1501 et. seq., does not require public offering statements or condominium resale certificates. However, in some circumstances the owner of an Idaho condominium unit will be entitled to receive a statement of the owner’s account setting forth the amount of any unpaid assessments or other charges due and owing. That statement could be provided to a buyer to at least prove that assessments are current as of closing – assuring the buyer that the HOA will not have a lien on the unit for past due assessments. Additionally, the declaration andof some Idaho condominiums require the HOA to provide an “estoppel certificate” upon request. This estoppel certificate will contain information about the seller’s payment history and any outstanding assessment payments similar to the statement described above.
Obviously, neither the statement or estoppel certificate addresses the larger issue of the financial wherewithal of the HOA itself. Within many, if not most, Idaho condominium HOAs, unit owners have the right to view and copy the records of the association. Therefore, a seller could essentially compile his/her own condominium resale certificate, but in reality most will not go to the effort. There is significantly more of a caveat emptor approach in Idaho’s condominium law as compared to Washington’s, which has substantial consumer protection element. A prospective condo buyer in Idaho will be wise to ask a lot of questions and even try to speak to the manager or bookkeeper of the HOA directly.
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