Buyer Due Diligence
Excerpted from a posting by Zachary Levine, JD and Donie Vanitzian, JD – 2014
Buyers should request a minimum of 24 months of signed homeowner association minutes. Twelve months of minutes is inadequate especially if any minutes are sparse or in “draft” form or unsigned, or meetings were infrequent.
Buyers should ask to attend at least three homeowner association board meetings. A board might be on its best behavior for that first meeting, but by the third meeting there might be a different picture of what it’s like in that development.
Walk the grounds during the day and evening, look for items of disrepair. Then request the most recent minutes documenting discussion of those items to ensure the board is acting promptly and repair is scheduled.
Smart buyers ask for homeowner association documents before writing an offer.
Once signed, that offer becomes the parties’ escrow instructions. And once the contract is accepted and escrow has opened, it could be difficult modifying those instructions. It makes sense that buyers are performing due diligence prior to making offers.
The transfer documents that should be requested:
- Age restrictions, if any
- Annual budget report/Pro forma, and reserve study
- Approved changes to assessments
- Articles of incorporation or a statement that the association is not incorporated
- Assessment and reserve funding disclosure summary
- Assessment enforcement policy
- Emergency assessment
- Financial statement review
- Insurance summary
- Minutes of regular board meetings conducted over the previous 12 months, if requested. Make sure to ask for 24 months.
- Notice(s) of violation
- Operating rules
- Other unpaid obligations of seller
- Preliminary list of defects
- Regular assessment
- Rental restrictions, if any
- Required statement of fees
- Settlement notice regarding common area defects
- Special assessment
Buyers should understand they are not limited to these transfer disclosures. In performing due diligence, buyers should ask for whatever they feel is necessary to make an informed decision.
Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295.