The Secret to Disclosures in Community Associations, Part 1
As the real estate market begins to come roaring back, real estate disclosure requirements are an important consideration as homes are quickly changing hands in the current market. Oregon and Washington differ in their disclosure requirements, and it is important for associations to understand when and what to disclose and not to disclose. Admittedly, it can be a bit trickier for associations than it is for owners. For owners, erring on the side of disclosure is often the best and safest way to go. Although that is often also true for associations, associations may have some competing interests to keep in mind. For example, associations have to be careful to ensure they do not waive attorney-client privilege or otherwise disclose information that needs to remain protected. Here are a few key points to keep in mind:
Litigation: Depending on the circumstance, associations may be required to disclose whether the association is involved in pending litigation. In preparing resale certificates for Washington condominium associations (discussed below), associations must disclose the status of any pending suits or legal proceedings in which the association is a plaintiff or defendant (associations must also disclose whether there are any unsatisfied judgments against the association). For other types of community associations, if you are thinking about a potential litigation (or otherwise find yourself at the beginning stages of litigation), that’s the best time to review the information the association is disclosing to owners for the sale of a home. Sometimes associations ask whether they are required to disclose the existence of litigation when the information regarding the association’s litigation is otherwise available to the public. Even though the information is publicly accessible, that fact does not often or likely obviate an association’s obligation to disclose. Importantly, associations can be involved in varying types of litigations that come in all shapes and sizes—whether to disclose, when to disclose, and what to disclose should be a topic for the association’s counsel that is assisting the association with the specific litigation. It’s the association’s counsel that will be in the best position to assist the association in ensuring they do not inadvertently disclose (and waive) attorney-client privileged communications.
Assessments and past due amounts: Associations may have specific responsibilities to provide statements of past due amounts when a delinquent owner attempts to sell. For example, in Oregon, upon request of an owner or owner’s agent (and for the benefit of a prospective purchaser), an association shall provide a written statement of the unpaid assessments through a date specified in the statement. If the amounts are incorrect, the association is out of luck if the association subsequently attempts to recoup omitted or additional amounts from the buyer (escrow agents and title companies are also entitled to rely on this type of statement from an association). See ORS 100.475; ORS 94.712. A similar type of provision applies to Washington condominiums. The practical tip here is to prepare these types of payoffs carefully and to ensure the written statement expressly states the date through which the statement is valid (e.g., “valid through August 1, 2015”). Also, if the amounts could increase before a proposed closing date, it is helpful to note that information as well. If an account has been turned over for collections, ensure that the past due balance includes any authorized collections costs and attorneys’ fees or work directly with the association’s attorney to ensure all charges, fees, and costs are included.
Electric Vehicle Charging Stations: As electric vehicles become more prevalent, associations are receiving requests for the installation of electric vehicle charging stations in owner’s parking spaces and on limited common elements. Does an association have to ensure a prospective purchaser is aware of the electric vehicle charging station? Associations are sometimes understandably concerned because owners are often responsible for extra costs specifically relating to those charging stations. Oregon law has an answer on point: Although an association could disclose the existence of a charging station, the unit owner is the one who is responsible for doing so.
Resale Certificates: Not all laws are as helpful as RCW 64.34.425 of the Washington Condominium Act in spelling out an association’s obligations when it comes to disclosure requirements for the sale of a unit. For Washington condominiums, associations can find detailed guidance on the requirements for a resale certificate. RCW 64.34.425 explains that the resale certificate must be signed by an officer or authorized agent of the association and must include, for example, the association’s current operating budget, insurance coverage information, a statement of any anticipated repair or replacement cost in excess of five percent of the annual budget that has been approved by the board, and similar types of items. That statute even notes the cost: Associations cannot charge more than $275.00 for the preparation of a resale certificate (when setting the cost, associations should ensure that the charges are reasonable). For other types of associations, the rules are not always as clear.
In practice, fulfilling the real estate disclosure requirements is a team effort. In part 2 on this topic next week, we’ll focus on practical pointers concerning the disclosure requirements related to the resale certificate. In the meantime, don’t hesitate to contact our team for answers to your disclosure questions.