Forbes Bender & Paolino P.C.

By Katie Robinson

Buying a new home can be an exciting time for prospective homeowners, but the intricacies of the process can also make it incredibly stressful, especially for first time homebuyers. Finances often guide the process, with a difficult housing market only further complicating the matter. Well-informed potential residents, however, can go into their search for a new home knowing just which financial information is accessible.

Prospective buyers should do their research prior to looking for a unit in an HOA or condominium. They should know what financial information they can request from the property managers in order to determine if the association in question has a healthy financial history. Joel Meskin, Esq., CIRMS, is the Vice President of Community Association Insurance & Risk Management at McGowan Program Administrators in Fairview Park, OH. He noted that an association’s obligation to provide certain financial information and documents to potential buyers varies from state to state. “The potential buyer can ask any question or make any request they want. What they are entitled to ask, and the HOA is required to provide, is a state-by-state issue,” Meskin said.

Stephen R. Buschmann, an attorney at Thrasher Buschmann & Voelkel, P.C., in Indianapolis, IN, noted the differences among types of associations with regard to what financial information can be obtained from them by potential homeowners in his state. “The Declaration of an HOA is a recorded document. Therefore, a potential buyer can obtain a copy of the Declaration before closing on an offer. Note that in a condominium the by-laws are recorded as well, so the buyer can get copies of those also,” Buschmann said. Indiana further requires that real estate agents complete a Sellers’ Residential Real Estate Sales Disclosure (State Form 46234), which must be provided to the buyer before an offer on the property is accepted. Buschmann added that the form includes such questions as, “Is the property subject to covenants, conditions and/or restrictions of a homeowners association?” and “Are there any violations of zoning, building codes or restrictive covenants?” This particular form ensures that certain information is known to any buyers in Indiana before a purchase is made final.

In a Planned Unit Development, Buschmann said, “A buyer is generally co-liable with the seller for unpaid assessments that accrued before the closing of the sale.” The rules regarding condominiums differ slightly, with IC 32-25-5-2 providing that a buyer is as liable as the seller for any unpaid assessments on the unit that existed prior to the closing of the sale. “The statute provides that the buyer may make a written request to an association of the amount of outstanding assessments on the unit. The association has ten business days after receipt to respond. If it does not respond, then the buyer has no liability for pre-transfer assessments. If the association does respond, then the buyer is only responsible for the amount stated in the response,” Buschmann said. This statute helps to limit the potential liability of the buyer.

A similar requirement is in effect in Pennsylvania under the Pennsylvania Planned Community Act. This determines that associations must provide to potential buyers certain information prior to the sale of a unit. Alexander D. DiSanti, Esq., an attorney at Forbes Bender Paolino & DiSanti, P.C., in Media, PA, said that the requirement set down in Pennsylvania is meant to be consumer friendly and to inform the buyer of the nature of his or her purchase. “Before the execution of any contract of sale, a variety of financial, insurance and other information must be provided to the purchaser so that a rational decision may be made about whether to purchase a unit,” DiSanti said.

According to DiSanti, some of the significant requirements of the Act include the budget for the first year of operation after purchase of the first unit, a description of reserves, monthly projected common expense assessments, association expenses, and the disclosure of special fees payable at closing, among other things. DiSanti further noted that Pennsylvania law requires a property report, detailing the condition of structural components and major utility installations. All empower the homebuyer with a thorough picture of the association’s financial situation.

A more limited information set, in the form of a resale certificate, must be provided to the buyer when a unit is resold by a private unit owner other than the declarant in Pennsylvania. “The public offering statement of the declarant need not be provided to the buyer,” DiSanti said. “A homeowners association is obligated to provide the resale certificate, along with copies of the governing documents of the association, within 10 days of a request by a unit owner, who has the responsibility to provide this information.”

Obtaining additional information beyond that required by the state, however, is a more difficult task. DiSanti recommended directing requests to either the executive board of the association or the property manager. “Understandably, there may be reluctance to provide any information which is not required to be disclosed,” he said.

If an Indiana homeowner were to request financial records from his or her association, it would be required by law to provide contracts, invoices, bills, receipts, and bank records. “The association is not required to provide this to a potential buyer. However, a buyer could condition the closing on the seller obtaining copies of whatever information the buyer deems appropriate,” Buschmann said.

Beyond requesting financial documents from the association, buyers can do their own independent research to determine financial health. “I would be doing a great deal due diligence on my own and not rely on the association for their financial information. I would probably do a civil index check with the court to see if there are any foreclosures pending, which could give an idea of the financial stability of the association. If there are a lot of foreclosures, there is a possibility that the association is not getting the revenue it needs to operate. I would ask a ‘good’ real estate agent what the disclosure requirements are for an association,” Meskin said.

Meskin underscored the importance of buyers doing their homework prior to going into their search. While the amount of research that a potential buyer can do is rather extensive, knowing what an association is actually required to offer can help to ease the process of purchasing a new home.

Alexander D. DiSanti, Esq., is an officer of Forbes Bender Paolino & DiSanti, P.C.  Forbes Bender Paolino & DiSanti, P.C., is a full service law firm with offices located in Delaware County (Media) and Chester County (West Chester), Pennsylvania.  Alex has been representing condominium and homeowner associations for over 25 years.  He has the highest lawyer rating given by Martindale-Hubbell of AV Preeminent.  Alex was selected for inclusion in Legal Leaders Presents Philadelphia’s Top Rated Lawyers of 2014 and Pennsylvania’s Legal Leaders Presenting Top Rated Lawyers for year 2013.  At the request of the National Business Institute, he has served as a faculty member and instructor of Legal Aspects of Condominium Development and Homeowners’ Associations, a legal education seminar for lawyers.  Alex can be reached at (610) 627-1700 or adisanti@fbpdlaw.com.  Visit his website at www.fbpdlaw.com.