Tips to Realtors: Avoiding Pitfalls in an HOA Transaction

By: Scott Welker

For a real estate agent, an HOA can add headaches to an already painful transaction.  Your client’s lender has asked you to jump through hoops, the title company is requiring you to do it without the use of your legs, and now the HOA has decided to light the hoops on fire just for good measure.  

In my experience, board members and HOA managers generally have the community’s best interest in mind and, since your client will soon be living in the community, that’s to his or her advantage.  But, as with most relationships, in order to communicate and work together effectively, each side should be working with the same information at their disposal. That being the case, a little legal insight into a few of the common issues Real Estate Agents face in HOAs might go a long ways.  Here are three tips to help with your transactions.   

Request the Right Records through the Right Channels 

In Utah, HOAs are not legally obligated to provide their records to 3rd parties except in a few narrow circumstances.  So, you might find yourself running into a brick wall if your requests are made directly to the HOA Board or property manager.  There is one person they are obligated to give them to, though: the homeowner in their community. If you’re having trouble getting a copy of the records, have the homeowner request them in writing.  They won’t necessarily be free but failure to provide records to an Association member can have serious legal consequences so the HOA should be motivated to comply promptly with the request.  

Make sure you are requesting the records that matter most, too.  The Declaration and Bylaws are very important documents but there are other documents that could have as much – if not more – of an impact on your client’s day-to-day.  Association Rules and Architectural Guidelines are not typically recorded but are equally enforceable against homeowners. They will usually contain detailed do’s and don’ts not found in the recorded documents and failure to comply with them could lead to fines.  The most recent reserve study will also provide insight into the condition of HOA facilities and finances and large expenses that might lie ahead for Association members.  

Understand the Nuances Unique to HOA Liens

Does the property your client is looking at have a Notice of Lien against it recorded by the HOA?  If so, be aware that, unlike most liens, an HOA lien is considered a “continuing lien.” This means that it secures payment of both debt that was owed at the time the lien was filed and additional charges that accrued thereafter.  Be prepared for the possibility of a lien payoff that is substantially higher than the balance stated on the Notice of Lien. The HOA might not be very willing to compromise as the balance reflects serious time and money they’ve put into trying to collect.    

Know where to Turn for Information on Construction Defect Lawsuits

A pending construction defect lawsuit can have major implications on real estate transactions in a community.  If you’re looking for information on one, you won’t get very far by calling the HOA’s attorney. The attorney represents the HOA as an entity, not any individual homeowner therein.  That means that they probably won’t be willing to hand over their pleadings and motions even when the request comes from a homeowner in the Association. Instead, call the clerk of the court or turn to an online service like Xchange to purchase case filings for a small fee.