Home Sale Hindsight
Home Sale Hindsight
Q: I'm buying a condo in California, and have already removed all my contingencies. I have just realized that there were some documents that weren't provided to me before and they point to a possible litigation being pursued against the builder by the homeowners association (HOA). How is this even possible, and what is my position?
A: This situation has arisen due to at least two separate problems. First of all, some California HOAs take 15 or 20 days (or more) to produce their disclosure packages, after they are ordered by an agent or title/escrow officer.
These packages are extremely lengthy, by necessity, as they must include all newsletters, covenants, codes & restrictions (CC&Rs), board meeting minutes for the last 12 months, financials, insurance documentation, and other rules and regulations for living and owning a unit. It's not at all bizarre for these packets to run upwards of 250 pages!
But back to timing. If it takes the HOA 20 days to produce its packet for your inspection, this is a major disconnect with the seven- to 17-day contingency periods governing most California purchase transactions on today's market.
(Seventeen days is the default contingency period provided for in the California Association of Realtors' purchase contract, but bank-owned properties and homes on which there were multiple offers often mandate or negotiate a shorter contingency period.)
Given that the contingency period runs from the day the seller accepts your offer, and the HOA disclosures might not even be ordered for several days after that time, many homebuyers end up with a timeline dilemma wherein they are ready to remove all their contingencies except the contingency for their inspection of the HOA documents on time, but they don't even have their HOA disclosures yet.
Assuming you need financing for your purchase, you should also be aware that without the HOA documents and disclosures, a buyer is not truly able to obtain a full, final loan approval that would warrant the removal of the loan contingency, as the HOA dues delinquency rate, rate of owner-occupancy and whether the HOA is involved in any litigation are all potential deal-killers for your lender that you likely won't know with certainty until you receive your HOA disclosures.
Now, the timing problem is not one you or your agent had much control over, assuming the issue arose from the HOA's tardy production of the documents. However, perhaps the bigger problem is that you removed all of your contingencies prior to receiving these important disclosures.
Either or both of your contingencies for your loan and/or your inspection of HOA disclosures should have been reserved (i.e., not removed) and extended, if need be, until you and your loan's underwriter were able to review the HOA documents and find them to be satisfactory.
Because standard practice in California requires an active removal of contingencies, if the HOA was late producing your disclosures, the proper response for you was to sign a form that removes some contingencies and reserves others.
Of course, if the unit you are buying is bank-owned, you might have passively removed contingencies simply by letting the allotted time period pass without objection, so the appropriate move was to request an extension of your contingency for inspection of HOA documents.
Assuming your agent facilitated your contingency removal, I recommend that you have a sit-down with your agent and maybe even his or her employing broker to request an explanation as to why they recommended you fully remove contingencies prior to reviewing the HOA documents, and to ask them what course of action they recommend to vindicate your rights going forward.
If you decide to move forward with the transaction, despite the information you have now received, then no harm, no foul. If you decide that you'd rather back out of the deal, though, you should be able to do so and recoup your deposit under the purchase contract -- if you act fast.
California real estate law provides that if a homebuyer is provided with new, material disclosures at any time prior to close of escrow, they are given the right to cancel the agreement for three business days following their receipt of the new disclosure.
Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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