What Financial Information Must Your Association Disclose to Prospective Homeowners?
One of your members has put her unit up for sale. She gets an offer and accepts it. You then get a request for all kinds of association records from the buyer. What's your response? What must your association provide when prospective homeowners ask for your association's governing documents? What about your financial documents and minutes? What if the buyer asks the number of delinquent owners and the amount of the delinquencies?
The answer to those questions depends on your state's law and your internal practices. Some states have rules requiring associations to provide extensive detail to potential buyers. Others are silent on the issue. Here's an overview.
Give Them Everything
Virginia has explicitly spelled out disclosure requirements. "Our act was put into place as a result of the lobbying of the Virginia Association of Realtors® because there were lawsuits about what Realtors should and shouldn't disclose about associations," says Elizabeth White, a shareholder and head of the community associations practice at the law firm of LeClairRyan in Williamsburg, Va. "In Virginia, there are very specific requirements about what should go into a disclosure package."
Upon request, associations must provide real estate agents or sellers with basic financials for the last fiscal year for which they're available. The agents or sellers can then pass them on to buyers. The financials can be the association's income and expense statement, a profit and loss statement, or whatever the association normally produces. Among the remaining information associations must also disclose is pending litigation, any loans the association has outstanding including the balance as of the day of the disclosure package, and the status of reserves and whether there's any portion of a fund allocated by the board for a specified project.
Ask the Sellers
Florida, New York, and Massachusetts are a different story.
There's nothing in Florida law that requires an association to provide information to a prospective purchaser. "Typically, an association has no obligation to a potential buyer unless it's a brand new condominium," explains Marc A. Silverman, an attorney at Frank, Weinberg & Black PL who advises associations. "By statute in Florida, for preconstruction condo sales, the offeror is required to deliver certain information called a 'Q&A booklet' and a prospectus, to the potential buyer."
Owners, however, can request information to pass onto potential buyers. "By statute, owners or members have the right to demand access to certain portions of the association's records," says Silverman. "If buyers want to see those records, they can make it a condition of the purchase that the owner get that information for the buyer. There's even Florida case law that a buyer doesn't even have standing to challenge the denial of an application to the association to see its records."
So what's a Florida association to do if it receives a record request from a potential buyer? "That depends on the association," says Silverman. "They're not legally obligated to respond, and if they consulted a lawyer, some would advise them not to provide anything. I don't know what I'd advise. I'd decide on a case-by-case basis."
There are also no specific disclosure requirements under New York law, says Luigi Rosabianca, the principal attorney at Rosabianca & Associates in New York City, who advises condo associations and co-ops. "We use the open book, transparency method," he says. "Prior to a purchaser making an investment, it's tradition and the norm for the management agent to allow access to several years' financials, budgets, offering plans, bylaws, and minutes. It's more of an open policy than a hide-and-seek one. That's coupled with cooperating with the lender and answering any questions the lender has."
Massachusetts imposes disclosure requirements on sellers, but not associations, says Robert Galvin, a partner at Davis, Malm & D'Agostine PC in Boston who specializes in representing condos and co-ops. "That's a seller disclosure issue," he says. "The law in Massachusetts does give unit owners—not prospective buyers—the right to look at all the records. So while the condo association has a duty to the unit owners, it doesn't have a duty to prospective buyers. If an association is asked for records, the practice is to refer that request to the seller."