HOAs, Resale Certificates, and Restrictions Violations

The resale certificate is a due diligence report for the buyer that allows them to understand how their property is affected by being in a homeowner’s association (“HOA”).  

Obviously the buyer needs to understand what their initial capital contribution in that property will be.  They also need to understand what their dues are and when they are paid and all of this information is contained in the resale certificate.  There are also some lesser reviewed items in the resale certificate that buyers should be sure to review. 

One of these items is lawsuits.  The resale certificate will have a paragraph in it that reads something like: 

If a buyer sees this it means the HOA is involved in lititgation of some sort which can affect the buyer’s costs associated with homeownership sometime in the future.  The buyer should obtain and review a copy of this lawsuit to make sure that they understand the implications. 

Another thing the buyer should review is restrictions violations.  They are usually shown like this: 

Existing restrictions violations can have two impacts on homeownership.  First, the HOA may issue fines or assessments against the homeowner.  Second, when it comes to closing time the title company may not be able to issue the T19.1 endorsement to the buyer.  You can read more about that endorsement here: bit.ly/3IBgg6P  More importantly, they may not be able to issue the T-19 endorsement to the lender which often times results in the lender not being able to fund the loan.  

So what can be done? The seller can resolve the restrictions violation prior to closing and have the HOA issue a letter that the violation has been satisfied.  This can of course take time so it is important that agents flag those violations early on in the transaction so that the agents can begin the discussion and negotiation process with their clients. These are also two very good reasons why a buyer should never waive obtaining the resale certificate. 

What else should a realtor know about the Resale Certificate? 
Every management company operates on their own schedule and since they are not a party to the contract they are not bound by the delivery dates that real estate agents negotiate in the contract for delivery requirements. Realtors should understand that a failure to timely deliver the resale certificate gives the buyer the right to cancel the contract.  Whether it is the buyer or seller that is responsible for ordering the resale certificate, failure to obtain timely is a cancellation contingency: 

When filling out the Addendum for Property Subject To Mandatory Membership In a Property Owner’s Association a real estate agent should put a reasonable time frame in that allows for title to obtain the resale certificate from the management company.  If a contract has too short of a timeline in this addendum then there is a good chance the buyer can terminate the contract due to failure to deliver the resale certificate. 

Your closing teams at Texas National Title will also warn you up front if the management company has communicated to us that they cannot deliver by the due date.  When you receive these notices it is important that you review your file to see if an amendment is necessary to preserve the interest of your clients.

Working with a knowledgeable title company is the key to success!  Our escrow teams are the experts that you need and the partners that you can trust.  Any time you have questions please do not hesitate to contact us! 

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