Expert: Karyn Foley - 7/11/2006

Question
I recently sold a condo that had just settled an outstanding litigation with the builder in December 2005. The lawsuit was settled in the favor of the homeowner's association and we were awarded an amount, to be paid in 4 installments, over 2 years. With the announcement of the settlement the HOA also levied a special assessment of $5,000 to each unit to replenish the operating fund. We paid the special assessment.

Sometime around the end of April 2006 we placed our condo on the market. The HOA filled out the required disclosures and supplied the essential paperwork, such as the CC&Rs, board minutes for the last year, recent financial statements, budget for 2006, info related to the settlement of the litigation, etc. Additionally the HOA stated that there were no special assessments that were pending.

We accepted an offer on our condo on May 15, 2006, which stipulated a 30 day close. Expecting to close on June 14th, we started the process of moving out of our condo on June 4th and had the mail forwarded to our new address starting on June 12th. However, we were informed by the buyers on June 9th that they would not be able to meet the original close date of June 14th and that they needed more time to secure financing. We signed an extension to amend the close date to June 22nd, with the buyers paying PITI and HOA fees up to that date. Because of a series of other delays, all originating from the buyer's side, they signed the loan docs on June 26th. We didn't close until July 3rd.

On June 29th we received a letter from our HOA at our new address. Naturally we assumed that it was the bill for the HOA dues for July and did not open it, knowing that the sale was already a done deal. The envelope was postmarked June 21st at our old location and postmarked again with a date of June 28th at the post office of our new city.

While cleaning up our office yesterday (July 6th) I opened up the letter from the HOA, with the intention of throwing it out. The letter essentially stated that additional repairs were discovered and that the HOA did not have the funds to cover the new repairs, requiring another assessment from the condo owners. The letter itself was dated June 19th.

What type of exposure do we have sellers have with respect to this situation?

Answer
Dear Condo Gal:
  Wow - what bad timing!  I applaud your integrity about how the dates were recorded and your genuine concern about responsibility.  The dates are all before your transaction closed, and really should have been immediately sent over to the buyers.  I do not have a copy of your contract; if I did, I would read over to see if you had a clause that you, as the seller, would be resonsible for paying all existing liens and assessments and the buyer responsible for same that come up after title transfers.  
 I suggest that you immediately call your agent and explain the situation, having her get in touch with the buyers' agent.  Perhaps you can all have a meeting and work out something equitable, such as splitting the amount.  If the buyers are strong in their belief that you should be the one paying, ask your agent for guidance.  If the assessment will be over the couple of year, perhaps you could pay the first year and the buyer pay the remainder.  If the buyers still insist that you are the one totally responsible, weigh that amount with what it might cost you to fight it legally.  Consider paying a real estate attorney for one visit to get legal advice on your rights and obligations.  We real estate brokers cannot "practice law without a license" so I cannot offer you my thoughts on your legal responsibility.  However, my feelings are that the assessment was disclosed to you prior to transfer of title, and your obligation would have been to conform to the agreement in your contract.  I am noticing that your buyers paid the HOA fees up to that date, but fees are usually not special assessments unless otherwise agreed upon.  Role play the part of the buyer - how do you think you would feel if the roles were thus reversed.  Sometimes it is painful to do the right thing, but you might just have to bite the bullet.  In some areas there are storefront para-legal offices that could run you less money for a legal opinion.  Try that, too.  Good luck to you, and let me know if I can answer any other questions that come up and be sure to let me know what happens.  Karyn Foley