As buyers actively pursue foreclosures in the country they may not be aware of certain statutes regarding the purchase of condominiums and/or properties located within a homeowners associations. In some instances condominium associations could be part of a homeowners association.
A prospective buyer should be sure the real estate agent they are selecting is aware of these statutes and be willing to obtain them in the case of a foreclosed property, when they are considering a purchase.
With foreclosed properties the seller (Fannie Mae, Freddie Mac, and REO’s) require a specific addendum to be made as part of the sales contract. The addendum is written to highly favor the seller and not the buyer. Although each seller of foreclosed properties has different clauses within the addendum and use different language through-out. Prospective buyers should be aware of the clauses and should have a real estate attorney review the addendum prior to signing the addendum and be informed about issues within the addendum and how they could affect their purchase, as well as, ensuring state statutes are followed by the sellers.
Because each state has different laws, Fannie Mae, Freddie Mac, and the REO’s it is not possible for them to prepare an appropriate addendum meeting the requirements of individual state statutes.
The problem starts when a real estate agent representing the buyer in a transaction requests the required documents or disclosures, the listing real estate agent states the seller will not furnish any documents or sign any disclosures. If Fannie, Freddie or the REO is contacted by the buyer’s real estate agent calls are not returned, personnel are not aware of what the state statutes require, and executive directors do not respond to calls.
First, the buyer needs to be aware of the chapters addressing condominiums and homeowner associations. Buyers also should understand that a condominium association could be located within a homeowners association bringing both chapters into affect. Below are excerpts from the respective chapters.
For example, the State of Florida Statutes regarding the purchase of condominiums (Chapter 718) and properties located within a homeowners association (Chapter 720) could be ignored.
State of Florida Chapter 718
Section 718.503 Developer disclosure prior to sale; nondeveloper unit owner disclosure prior to sale; voidability.
(2) NONDEVELOPER DISCLOSURE.– (a) Each unit owner who is not a developer as defined by this chapter shall comply with the provisions of this subsection prior to the sale of his or her unit. Each prospective purchaser who has entered into a contract for the purchase of a condominium unit is entitled, at the seller’s expense, to a current copy of the declaration of condominium, articles of incorporation of the association, bylaws and rules of the association, financial information required by s. 718.111, and the document entitled “Frequently Asked Questions and Answers” required by s. 718.504. On and after January 1, 2009, the prospective purchaser shall also be entitled to receive from the seller a copy of a governance form.
State of Florida Chapter 720
PART II DISCLOSURE PRIOR TO SALE OF RESIDENTIAL PARCELS
Section 720.401 Prospective purchasers subject to association membership requirement; disclosure required; covenants; assessments; contract cancellation.–
(1)(a) A prospective parcel owner in a community must be presented a disclosure summary before executing the contract for sale. The disclosure summary must be in a form substantially similar to the following form:
“DISCLOSURE SUMMARY
FOR
(NAME OF COMMUNITY)
1. AS A PURCHASER OF PROPERTY IN THIS COMMUNITY, YOU WILL BE OBLIGATED TO BE A MEMBER OF A HOMEOWNERS’ ASSOCIATION.
2. THERE HAVE BEEN OR WILL BE RECORDED RESTRICTIVE COVENANTS GOVERNING THE USE AND OCCUPANCY OF PROPERTIES IN THIS COMMUNITY.
3. YOU WILL BE OBLIGATED TO PAY ASSESSMENTS TO THE ASSOCIATION. ASSESSMENTS MAY BE SUBJECT TO PERIODIC CHANGE. IF APPLICABLE, THE CURRENT AMOUNT IS $_____ PER _____. YOU WILL ALSO BE OBLIGATED TO PAY ANY SPECIAL ASSESSMENTS IMPOSED BY THE ASSOCIATION. SUCH SPECIAL ASSESSMENTS MAY BE SUBJECT TO CHANGE. IF APPLICABLE, THE CURRENT AMOUNT IS $_____ PER _____.
4. YOU MAY BE OBLIGATED TO PAY SPECIAL ASSESSMENTS TO THE RESPECTIVE MUNICIPALITY, COUNTY, OR SPECIAL DISTRICT. ALL ASSESSMENTS ARE SUBJECT TO PERIODIC CHANGE.
5. YOUR FAILURE TO PAY SPECIAL ASSESSMENTS OR ASSESSMENTS LEVIED BY A MANDATORY HOMEOWNERS’ ASSOCIATION COULD RESULT IN A LIEN ON YOUR PROPERTY.
6. THERE MAY BE AN OBLIGATION TO PAY RENT OR LAND USE FEES FOR RECREATIONAL OR OTHER COMMONLY USED FACILITIES AS AN OBLIGATION OF MEMBERSHIP IN THE HOMEOWNERS’ ASSOCIATION. IF APPLICABLE, THE CURRENT AMOUNT IS $_____ PER _____.
7. THE DEVELOPER MAY HAVE THE RIGHT TO AMEND THE RESTRICTIVE COVENANTS WITHOUT THE APPROVAL OF THE ASSOCIATION MEMBERSHIP OR THE APPROVAL OF THE PARCEL OWNERS.
8. THE STATEMENTS CONTAINED IN THIS DISCLOSURE FORM ARE ONLY SUMMARY IN NATURE, AND, AS A PROSPECTIVE PURCHASER, YOU SHOULD REFER TO THE COVENANTS AND THE ASSOCIATION GOVERNING DOCUMENTS BEFORE PURCHASING PROPERTY.
9. THESE DOCUMENTS ARE EITHER MATTERS OF PUBLIC RECORD AND CAN BE OBTAINED FROM THE RECORD OFFICE IN THE COUNTY WHERE THE PROPERTY IS LOCATED, OR ARE NOT RECORDED AND CAN BE OBTAINED FROM THE DEVELOPER.
DATE:
PURCHASER:
PURCHASER:”
It further states the following:
“The disclosure must be supplied by the developer, or by the parcel owner if the sale is by an owner that is not the developer. Any contract or agreement for sale shall refer to and incorporate the disclosure summary and shall include, in prominent language, a statement that the potential buyer should not execute the contract or agreement until they have received and read the disclosure summary required by this section.”
Below are excerpts from some addendum, which conflicts with the state statutes and responsibility falls on the shoulders of the buyer.
Example one is taken from the Fannie Mae addendum:
“If the Property is a condominium or planned unit development or co-operative, unless otherwise required by law, the Purchaser, at the Purchaser’s own expense, is responsible for obtaining and reviewing the covenants, conditions and restrictions and bylaws of the condominium, or planned unit development or cooperative within (10) days of execution of this Agreement by both parties pursuant to paragraph 1 hereof. The Seller agrees to use reasonable efforts, as determined at the Seller’s sole discretion, to assist the Purchaser in obtaining a copy of the covenants, conditions and restrictions and bylaws. The Purchaser will be deemed to have accepted the covenants, conditions and restrictions and by laws if the Purchaser does not notify the Seller in writing, within 15 days of execution of this Agreement, of the Purchaser’s objection to the covenants, conditions and restrictions and/or bylaws.”
Example two is taken from a REO addendum:
“If the Property is a condominium, planned unit development, subject to a homeowner’s association or cooperative, unless otherwise required by state law, Buyer, at Buyer’s own expense, is responsible for obtaining and reviewing the covenants, conditions, restrictions and/or bylaws of the relevant entity within seven (7) calendar days of the Seller’s delivery of executed contract to Buyer. Seller agrees to employ reasonable efforts to assist Buyer in obtaining a copy of said documents. Buyer will be deemed to have accepted the covenants, conditions, restrictions and/or bylaws if Buyer does not notify Seller in writing, within ten (10) days of Seller’s acceptance, or Buyer’s objection to the same.”
Example three is taken from the Freddie Mac addendum:
“IT IS EXPRESSLY AGREED AND ACKNOWLEDGED BY THE PURCHASER THAT ANY EXPRESS REPRESENTATIONS, WARRANTIES, OR STATEMENTS CONTAINED IN THE CONTRACT OF SALE, WHETHER REFERRING TO THE CONDITION OF THE PROPERTY, OR WHETHER REFERRING TO THE EXISTENCE OF FEATURES, FUNCTIONS OR SERVICES RELATING TO OR SERVING THE PROPERTY (INCLUDING, BY WAY OF EXAMPLE ONLY, WHETHER THE PROPERTY HAS PARTICULAR TYPES OF UTILITY SERVICES), ARE SPECIFICALLY WAIVED, DISCLAIMED, AND RENDERED NULL AND VOID.”
The clauses within the addendum are clearly not in compliance with state laws, however the seller of foreclosed properties should be made aware of the conflict or conflicts and work in an amicable manner to comply. Rather than being unresponsive to the prospective buyer or the buyer’s real estate agent, when the issue is being brought to their attention. One could go so far that the seller may elect to find real estate agents who are more familiar with the state or local laws governing documentation involving the sale and purchase of real estate.
A good buyer’s real estate agent understands the individual state laws and will obtain the documents the buyer should have as required. A buyer of a condominium in Florida is required to be furnished with the following documents:
1) Declaration of Condominium;
2) Articles of Incorporation;
3) Bylaws;
4) Rules and Regulations;
5) Most Recent Year-End Financial Statements;
6) Question and Answer Sheet;
7) Governance Form.
A buyer of a property located within a homeowners association should have the following documents:
1) Disclosure Summary for the Homeowners Association, at a minimum;
2) Declaration of Restrictive Covenants;
3) Articles of Incorporation;
4) Bylaws;
5) Rules & Regulations;
6) Most Recent Year-End Financial Statements.
A prospective buyer should be working with both a good the real estate agent and real estate attorney who are aware and knowledgeable of state statutes and know how and where to documents to satisfy and protect them )the buyer) in the case of a foreclosed property, when they are considering a purchase.