If you are a builder, management company, or HOA in need of updating an incomplete or outdated disclosure packet, The Land Lawyers can help you prepare the proper documentation and avoid any difficulty that might arise prior to a residential closing.
Residential builders and sellers often find themselves scrambling just before a residential real estate closing to provide a complete and current disclosure packet, as required by the Virginia Property Owners’ Association Act. The Act (Virginia Code Title 55, Chapter 26) dictates the contents of this disclosure packet and burdens the seller with the obligation of getting it into the purchaser’s hands for review prior to closing.
The Act provides the purchaser with the right to walk away from an executed contract upon delivery of the seller’s disclosure packet, or if a seller cannot provide it at all. The seller usually asks its HOA’s management company to deliver the packet to the purchaser. The management company is limited by the Act on both the amount it can charge for providing the packet as well as when that payment is due. Tension can arise between the seller and the HOA’s management company if the management company delivers a packet that does not comply with the Act or if the management company attempts to collect fees from the seller prior to settlement. This can place the seller in the awkward position of trying to enforce the Act against the HOA at a critical time in the transaction.
The packet must include key information that the Virginia legislature has determined a prospective purchaser should know before making the leap to home ownership within an HOA. This includes any HOA governing documents that will be binding on the purchaser, such as declarations of covenants, bylaws, architectural guidelines, and resolutions of the HOA’s board. The packet is required to specifically address restrictions on flags, solar collection devices, and signage applicable to the purchaser’s lot. The HOA’s financial information must also be included, such as the purchaser’s annual assessment amounts (including any possible special assessments), the financial statements and budgets of the HOA, current reserve studies, and whether the HOA may be embroiled in a lawsuit. Other information with regard to insurance, HOA approvals of changes to improvements on the purchaser’s lot, and lot violations are also addressed. The HOA is bound by the information in the packet, even if that information is erroneous.
Once delivered, the purchaser has only three days to review the packet and determine if the benefit of owning a home in an HOA, coupled with the amenities provided, exceeds the burden of the financial assessments, rules, and restrictions that are an unavoidable part of membership in an HOA. If the purchaser fails to provide timely notice to the seller that it is terminating the contract, or if the purchaser never receives the packet and then closes on the lot anyway, the purchaser’s right under the Act to walk away from the contract terminates.
HOAs can avoid running afoul of the Act, causing unnecessary stress on potential sellers and the aftermath caused by delivering incorrect information, by ensuring the packet contains all of the required information and is updated regularly to reflect changes in assessment amounts and take into account any new legislation.
For more information about disclosure packets and their fee schedules, or if you need help updating disclosure packets, email or call Erin Thiebert at 703.680.4664. You can also visit the VPOR website to learn more about the Property Owners’ Association Act, and DPOR’s website where you can download the Disclosure Packet Cover Sheet and find additional information about the maximum allowable fees owners can be charged for information they must provide to potential purchasers.
