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September 13, 2007
Managers - Boards - Get Your Act Together! Escrow Demands Demand Attention.
Escrow document packages .... the bane of managers, boards, realtors and last but certainly not least, buyers AND sellers .... are the subject of legislation in California. The realtors are looking for a new process for the transfer of governing documents to purchasers. SB 127 was introduced this year by Senator Keuhl in January. It has been amended several times. The latest version, amended August 27, proposes that selling owners must get the document packages (essentially the governing documents and budget, reserves documents and annual financial report, among other things) to a purchaser within "not less than 20 calendar days after the execution of the purchase agreement to purchase title to the separate interest or execution of a real property sales contract or the opening of escrow, whichever is later." The bill would allow the parties to defer the dates by written agreement.
Why is a bill like this introduced? There are at least two very good reasons. Because purchasers need to see the documents sooner so that they can review them and contingencies can be released in a more timely fashion. Because sellers need to start the process sooner in the transaction than a few days before escrow is supposed to close to get the documents together (since HOAs have 10 days from the date of a written request by seller to provide the documents on behalf of the seller).
In a perfect world, the seller would make the request of the HOA to provide the documents early on in a transaction. And the 10 days the board or manager has to respond would be plenty. But what commonly happens in real life? The seller leaves it up to his or her realtor. The realtor waits until the transaction is about to close to scramble for the documents. The board or manager either has a difficult time getting the documents together (in a self-managed association) or has a busy schedule that does not allow immediate turnaround (in the case of an overworked manager). And even if all of the requests and responses are made in a timely way, the document packages are often incomplete and lacking in important components. Many HOAs and managers have posted documents on a document repository website but have not posted all of the documents that are required, or have not updated the documents available on the site. Many boards and managers refer buyers, sellers and realtors to a website for the HOA insurance information and problems arise there as well. Some lenders have trouble getting the information from the website and some will not accept certifications purchased from the site by buyers or sellers.
There are oh-so-many issues that come up, and that is the impetus for this legislation - to push everyone into moving more quickly with regard to getting the document packages together.
A real estate transaction can fall apart for failure on the part of one or more of the parties to do their due diligence in making requests and responding to requests. Boards, managers, and readers: if these obligations are not taken very seriously, it can lead to lawsuits for negligence and breach of duty and/or statutory penalties. Don't get these timelines in this statute confused. This bill does not extend or shorten the time that the HOA needs to respond but it does force sellers and realtors that have been waiting until the last minute to request documents from the HOA to make the requests earlier in the transaction. And while this may leave more time for correcting errors that occur when document packages are incomplete or faulty, it does not eliminate the liability or penalties for failure to produce a full package on time.
The bill is not law yet, but it could be, if not this year, sometime in the future. As the problems continue, so does the determination of the California Association of Realtors to force some kind of resolutions. To see this bill, and compare it with current law, go to www.ca.gov, navigate to legislation and bills, and pull SB 127, and then navigate to California laws and the constitution, and pull Civil Code Section 1368.
And get your act together! At the very least, keep the documents that need to be distributed together in one place and make them easy to get to for purposes of making copies, post them on a website like condocerts.com, or keep electronic copies available for those who can accept electronic documents. And do your best to respond quickly to demands. The sellers and buyers of the world are counting on you!
Posted by Beth Grimm at September 13, 2007 10:31 AM