OBTAINING ASSOCIATION INFORMATION DURING THE ESCROW PROCESS By Tom Medvitz

Q:  When selling my unit, why does the escrow company have so much trouble getting information from the Association's management company for the prospective buyer?

A:  The sale or refinancing of a home can be a very stressful experience. One of the requirements of a sale or refinancing of a home is the "disclosure" of information that will allow the buyer, and lender, to make informed decisions when evaluating the perceived value of the property. When one lives in or owns a living unit in a common interest development, the disclosure requirements increase exponentially. There are questions that will be asked by the escrow company, mortgage company, and sometimes the organization guaranteeing the loan. The questions can cover every aspect of the common interest development. If the association belongs to a master association, the list of questions doubles.

Because there are recorded documents that govern almost every aspect of life in a common interest development, they are of utmost importance to review. If there are pending or active lawsuits, this information must be disclosed.

In a condominium or homeowners association, the requirement to disclose lies entirely on the shoulders of the owner of the property being sold or financed, not the association. Real estate brokers, sales agents, escrow officers, and lending institutions may not understand this situation.

The sad fact of the matter is no one has explained this to the owners although California Civil Code Section 1368 (a), dictates the documents to be provided to a prospective purchaser by the owner. The law requires the following information be provided:

1. A copy of the governing documents.
2. A disclosure of any restrictions in the governing documents limiting occupancy, residency, or use of the separate interest based on age.
3. A copy of the most recent documents distributed pursuant to Section 1365 (annual budget package).
4. A statement in writing from an authorized representative of the association regarding the current amounts owed by the owner's interest (the statement shall also include late charges, interest, and costs of collection that are or may be a lien on the owner's interest).
5. A copy of the preliminary list of defects required to be provided to each member of the association by Section 1375.1.
6. A copy of the latest information provided for in Section 1375.1.
7. Any change to the association's current regular or special assessments that have been approved, but not yet implemented.

This statute also provides that the association shall provide the requested information specified above to the owner of the separate interest within 10 days from the receipt of such a request. The Association may provide a fee for this service representing a reasonable cost to prepare and reproduce the items.

The requirement that the owner (and not the Association) is the sole party required to disclose such information has been reaffirmed by case law.

Kovich v. Paseo Del Mar Homeowners Association, was a court decision handed down in 1996. The Kovich court concurred with the Civil Code that the owner of the separate interest (the seller) is charged with all disclosures, and that no public interest would be served by imposing the same disclosure requirements on a homeowners association.

Noting that the homeowners association was not a party to the sale, did not benefit from the sale, and was not in direct communication with the buyer, the court's decision, reflecting current law, contains no provisions requiring the association to provide information to anyone other than the owner.

So what is the answer to ensure that the disclosure information is provided to owners and other parties in a timely manner so as not to impede the sale or refinancing process?

When an escrow is opened for the sale or refinancing of a living unit within a common interest development, the owner must contact the association requesting all the information required by the buyer, escrow company, and lenders. Upon receipt of this information, it's the owner's responsibility to disclose it to others as necessary. Owners should keep information provided by the association. Many time those pesky newsletters have much of the information required for disclosure.

Real estate brokers, agents, and escrow company personnel must understand that one of the first tasks must be getting the seller involved in the acquisition of the information that will be required. Then, and only then, can the process go smoothly and quickly.

Thomas J. Medvitz is a member of the San Diego Chapter of the Community Associations Institute (CAI) and president of Strom Management, Inc. Readers can visit the CAI Website at www.cai-sd.org and get their condominium questions answered by calling the Community Associations Institute at (619) 299-1376, by e-mailing q&a@cai-sd.org or by sending questions to Condominiums, Homes, San Diego Union-Tribune, P.O. Box 120191, San Diego, CA 92112-0191

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