In recent years, an increasing number of homeowners associations (HOAs) have reached out to us for clarification on their responsibilities to disclose information to potential buyers and their attorneys for pending real estate closings. This uptick in requests from buyers is likely due to an update to South Carolina’s Residential Property Condition Disclosure Statement form, which requires sellers to disclose more HOA related information. This article aims to clarify just what an HOA must disclose to prospective buyers, as well as what an HOA may voluntarily disclose as a best practice.
First, except in the rare instance in which an HOA is buying or selling the property, the HOA is not a party to the real estate closing between a property owner who happens to be a member of the HOA and a prospective buyer of that property.
When the HOA is not a party to the transaction, there is no statutory obligation in South Carolina which specifically imposes an obligation on an HOA to provide information to the potential buyers. However, this does not mean that buyers do not make requests for that information directly from the HOA, and it does not mean that it is not a good idea for the HOA to provide certain information upon such a request.
Pursuant to South Carolina’s Residential Property Condition Disclosure Act, subject to limited exceptions, an owner of real property must provide a purchaser with a Residential Property Condition Disclosure Statement, as promulgated by the South Carolina Real Estate Commission. The statement must disclose “whether the property is subject to governance of a homeowners association … which carries certain rights and obligations that may limit the use of the property and involve financial obligations.”[1] As of the date of this article, the form Residential Property Condition Disclosure Statement requires sellers to complete an addendum if the property is subject to an HOA, and this addendum asks for the following information:
- Whether there are association charges or common area expenses
- The amount of the assessment and frequency of the assessment (monthly, annually, other)
- Whether there are any resale or rental restrictions
- Whether the owners association levied any special assessments or similar charges
- Whether the governing documents create guest or visitor restrictions
- Whether the governing documents create animal restrictions
- Whether the property has assigned parking spaces, lockers, garages, or carports
- Whether there are keys, key fobs, or access codes required to access the common or recreational areas
- Whether any other memberships will transfer with the property
- Whether there are any known common area problems
- Whether the property or common area structures are subject to the SC Coastal Zone Management Act
- Whether there is a transfer fee
In the event that the answer to any of the above is “yes,” the addendum requires the seller to explain and attach any additional documents or information as needed. This is typically when seller or their attorney comes to the HOA for information. However, the addendum also states that buyer “should review the applicable documents (covenants, conditions, restrictions, bylaws, deeds, condominium master deed, and similar documents), all related association issues, and investigate the owner’s association prior to entering into any legal agreement including a contract.” I believe this instruction may be the reason HOAs are hearing directly from the potential buyers more frequently.
Although the HOA is not legally required to provide information directly to potential buyers in a real estate transaction, the HOA does have an obligation to provide certain corporate records to current owners who may happen to be the sellers in the transaction.
A current owner may request that the HOA send information to prospective buyer in which case it is best practices for the HOA to honor that request. With or without a current owner’s specific request, an HOA may want to share certain information and documents directly with prospective buyers, such as the applicable covenants, bylaws, and rules and regulations for the community. Generally, these documents are already required to be publicly recorded pursuant to South Carolina’s Homeowners Association Act.[2] Moreover, the HOA may also want to answer other questions which can be definitively answered based on reference to the governing documents, such as the frequency of assessments. While the HOA may not be obligated to furnish the prospective buyer with this information, doing so may not only facilitate a positive beginning to the HOA’s relationship with the potential new owner, but can also help to reduce future claims from that new owner that they were not made aware of the restrictions or requirements.
That said, the HOA should be careful not to provide incorrect or misleading information, as doing so could be detrimental to the HOA’s legal standing on that matter should conflict ever arise.
Even an innocent misstatement regarding interpretation of a provision of the governing documents could conceivably be used against the HOA later. HOAs should be especially careful if and when information is requested regarding any active litigation which involves the HOA. If the HOA is unsure of the information to be provided, or unsure of whether it would be prudent to share such information, the HOA may be best served by contacting counsel for advice.
On a final note, while unusual, it is conceivable that an HOA’s governing documents may set forth certain duties on the part of the HOA or its Board of Directors concerning prospective buyers and/or closings in the community, in which case the HOA should endeavor to comply with its governing documents so long as the provisions are not in conflict with the law.
Our attorneys at McCabe, Trotter & Beverly, P.C. are experienced and well-equipped to answer questions you may have regarding closing disclosures as they pertain to HOAs. Please contact us at (803)–724–5000 for further information.
V. Morgan Bryant
McCabe, Trotter & Beverly, P.C. blogs and other content are for educational and informational purposes only. This is not legal advice and does not create an attorney/client relationship between McCabe, Trotter & Beverly, P.C. and readers. Readers should consult an attorney to understand how this information relates to their personal situation and circumstances. You should not use McCabe, Trotter & Beverly, P.C. blogs or content as a substitute for legal advice from a licensed attorney.
[1] S.C. Code § 27-50-40(A)(9).
[2] S.C. Code § 27-30-130(A)(1).