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ASSOCIATIONS

The buyer's ignorance would be bliss for this condo seller

If there weren't problems, the unit wouldn't be for sale. The inquisitive will likely learn the truth.

May 21, 2006|Stephen Glassman and Donie Vanitzian | Special to The Times

Question: After a $4,100 special assessment two years ago, I put my townhouse up for sale. After two failed escrows, I lowered my asking price.

Finally, I supplied an interested buyer with the association's pro forma budget and some other papers the management company gave me. The buyer was unimpressed and refused to sign the offer to purchase without writing contingencies into the contract.

The buyer reserved the right to renege on the sale without penalties or forfeiture if the following contingencies were not met:

* The buyer's acceptance of all of the association's governing documents with copies of every amendment, rewrite and restatement.

* A forensic audit conducted by the buyer's attorney or accountant of the association's books, records and banking, at the buyer's expense.

* An independent investigation of the association's management company and personnel directly responsible for managing said association.

* A minimum of three years of final -- not draft -- board meeting minutes.

* Copies of all correspondence from seller to the board and from board to seller.

Here's my problem: I'm moving because our association has a history of tyrannical boards and overspending without accountability. If the buyer learns of this, there goes the sale. Do I have to accept all these contingencies?

Answer: Because this purchase is in a common-interest development, the property will have deed restrictions. In situations like this, smart buyers ask the right questions to protect their interests, and your buyer's requests are the right start.

The buyer is free to insert as many contingencies or protections into his sales agreement or offer as he wants, and the seller is free to accept or reject those contingencies.

Though none of this buyer's requests is unreasonable, you, as the seller, may place a time limit on the buyer's completion of the conditions or contingencies.

In some situations, correspondence between the owner and the board may be confidential and need not be disclosed.

If the seller fails to perform, the buyer may be able to cancel escrow without penalty or forfeiture of down payment, but if the buyer fails to perform, the seller may be able to cancel and keep the deposit or down payment.

When personal assets are at risk, one should never fault a diligent buyer for performing in-depth research into the viability of living in that common-interest development.

Whether incorporated or unincorporated, homeowner associations are nonprofit mutual benefit corporations. In short, the buyer is purchasing a "business" that is presently owned by people he has never met and is run by a board of directors that he never voted for.

One way of finding out about a homeowners association is to analyze various documents, and there is no better way to accomplish that than through a forensic audit and careful reading of the minutes. The cost of such examination is borne by the buyer. A conscientious study of the association's budgets and other actions may reveal too many closed board meetings or an overabundance of resolutions or rule-making activity, all warning signs to the buyer. Widespread delegation of board duties, mismanagement or even tyrannical decision-making may be noticed when scrutinizing the documents.

It may be incumbent upon the seller to provide additional incentives to the buyer to counteract the association's unpalatable operations.

However, whether any unfavorable circumstances exist, there is nothing wrong with a buyer's thorough investigation regarding the living environment beforehand.

Send questions to P.O. Box 11843, Marina del Rey, CA 90295 or e-mail noexit@mindspring

.com.

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