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DISCLOSURE OF DELINQUENCY TO MEMBERSHIP

Q. 
Is there ever a time when it is appropriate for the board of directors of a homeowners association to inform the membership of a serious delinquency in the payment of monthly assessments?

A. 
Yes. A board may disclose a delinquency when its collection action has reached the stage of a lawsuit. When an association becomes involved in litigation, the members are entitled to notice. The filing of a suit places the matter in the public domain and is material to the financial condition of the association. California Civil Code Section 47 protects the association as plaintiff from liability for defamation or disclosure of private information under the "litigation privilege."


DISCLOSURE OF LITIGATION TO MEMBERS

Q. 
Is my association board in Simi Valley required to disclose to the members what the board is doing to cure a violation of the CC&Rs by a member?

A. 
No. Such enforcement actions are not required to be disclosed to the membership unless litigation has been commenced by the board.

The board has a duty to disclose to its members, information that is material to the members' financial interest and which members must have in order to comply with their disclosure duties to lenders and buyers.

Upon inquiry by a member of the association as to what is being done about a particular violation of the CC&Rs, the best response is to simply inform the member that:

1) The board is (or has) investigated the matter, and
2) Will comply with its duty to enforce the CC&Rs.


FAILURE TO DISCLOSE

Q. 
We recently purchased a townhome in Valencia only to find out that the former owners had previously been notified in writing by the board of directors that their patio cover did not meet the architectural requirements of the community.  What can we do?

A. 
Section 1368 (a)(5) was recently added to the California Civil Code to deal with this type of problem.  Under this section, a copy or a summary of any notice previously sent to the owner that sets forth any alleged violation of the governing documents that remains unresolved must be provided to the prospective purchaser as soon as practical before transfer of title.

Any person or entity who willfully violates this section can be held liable to the purchaser for actual damages and, in addition, a fine not to exceed $500.00.


REQUIRED DISCLOSURES

Q. 
I am a new real estate agent and would like to specialize in selling condominiums. What types of disclosures are required to be made before a condominium can be sold?

A. 
Before a separate interest (unit in a condominium, lot in a planned development, or right to occupy in a stock cooperative) can be sold, the owner is required to provide the following to the prospective buyer:

(1) CC&Rs, Bylaws and Association Rules and Articles of Incorporation;

(2) A pro forma operating budget which must include all of the following:

(a) Estimated revenue and expenses on an accrual basis;

(b) A summary of the association's reserves based upon the most recent review or study in accordance with California law;

(c) The percentage reserves are funded as calculated by California law.

(3) A copy or a summary of any notice previously sent to the owner that sets forth any alleged violations of the governing documents that remain unresolved.

(4) A statement as to whether the board of directors has determined or anticipates that the levy of one or more special assessments will be required;

(5) A statement addressing the procedures used for calculating reserves;

(6) A statement as to the amount of the regular and special assessments, fees and, if applicable, the amount of any unpaid assessments and/or other charges owning;

(7) Any change in the association's regular and special assessments and fees which have been approved but have not yet become due;

(8) A review of the association's last financial statement prepared by a licensee of the California State board of Accountancy, if the annual gross income of the association exceeded $75,000;

(9) A statement describing the association's policies and practices in enforcing lien rights or other legal remedies for default in payment of its assessments; and

(10) A summary of the association's insurance coverages as required by California law.

In addition, sellers are required to disclose to any prospective purchaser any fact materially affecting the value and desirability of the property, including but not limited to, the physical conditions of the property and previously received reports of physical inspections.

Lastly, real estate agents are required to conduct a reasonably competent and diligent visual inspection of the property offered for sale and to disclose to the prospective purchaser all facts materially affecting the value or desirability of the property that an investigation would reveal.

As you can see, the duty to disclose is extensive. It is recommended that you utilize the applicable standard California Association of Realtors forms and that you take your duty to disclose seriously.


INSPECT BEFORE PURCHASING

Q. 
I am purchasing a condominium. What should I review and approve before I make the decision to commit to a purchase?

A. 
All of the items set forth in the answer above, plus the following:

(1)     An inspection report from a licensed and independent home inspector,

(2)     A structural pest control report, and

(3)     Minutes of meetings of the board of directors for the last twelve months.


DISTRIBUTION OF ANNUAL BUDGET

Q. 
Our homeowner association board cannot complete and distribute the annual budget on time. What do you suggest we do?

A. 
Distribute it on time in the most accurate form possible with a note to the members indicating that it will be revised at a later date. Be certain to include any anticipated increase in assessments up to 20%. You can always reduce the assessments later.


OBLIGATION TO DISCLOSE

Q. 
Is a homeowner association required to make disclosures concerning the condition of the common area to prospective buyers of homes?

A. 
No. An association's disclosure obligation is to existing owners, not prospective owners. Owners who intend to sell are required to make such disclosures to prospective buyers.

If an association makes a disclosure to a prospective buyer and it is inaccurate, the association could be held liable.


CONFLICT OF INTEREST WITH LAW FIRM

Q. 
Our homeowner association needed a referral to a law firm that would represent us on a contingency basis. Our management company made a referral and our board of directors subsequently signed an agreement with the law firm that was referred to us. The retainer agreement called for the law firm to receive 40% and the management company to receive 10%. The management company was required to provide some minor administrative assistance to the law firm. The case settled for millions of dollars and consequently the management company was paid several hundred thousand dollars for less than $2,000 worth of services! The members were never informed of the arrangement. As a member of the association, I am very concerned about this situation. What do you suggest?

A. 
You should be concerned about your board, the law firm representing your association and your management company. The situation you described calls for a confidential consultation.


FINANCIAL STATEMENT REQUESTED

Q. 
I own a townhome in Santa Monica, but am not on the board of directors. While attending a recent board meeting, I asked our management company representative for a current financial statement. My request was denied and I was told that I am only entitled to a year-end report. Is this correct?

A. 
No. California law requires a board of directors to provide every member with a year-end financial report but it does not preclude you from receiving interim reports. You are entitled to a monthly report, less the member delinquency report, but will be required to pay the cost of duplication. You are also permitted to inspect association records for any association related purpose.  Top


 





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