Cancellation Of Contract Possible Due To Undisclosed Homeowner's Association

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Summary: The homebuying process is full of surprises. Some homebuyers will find out that a home they are looking to buy has title defects, construction defects or, as in the case of this reader, the home to be purchased belongs to a homeowner's association. When a buyer is faced with these surprises, the buyer may see if a cancellation of the contract is possible. In some cases cancelling the contract is specifically permitted under the contract but in other cases the attempt to cancel the contract may lead to litigation.

Q: I made an offer on a house which was accepted, and am now in escrow. I just found out that the property has homeowners association. The listing did not mention anything about that nor did the paperwork I signed.

When I contacted my agent, he said he didn’t know anything about it but would ask the listing agent. He just got back to me and told me the dues were going to be about $55 per month. I was okay with it at first, but after hearing stories about how bad homeowners associations can be, I don't know if I want to get myself into a situation where there is a homeowners association.

But since this is going to be a cash transaction, I was informed that I would lose my deposit which I can't afford. I don't know what to do. I haven't been able to get a copy of the policies or rules of the homeowners association.

A: You have an interesting situation, but one that unfortunately is not unusual. If you are buying in a large building, you should generally assume that there must be an association to run the property.

If you’re buying in a development or subdivision that has a community building or other common amenities like a swimming pool, tennis courts, or workout facility, you can assume that there must be an association to run those amenities, provide ongoing maintenance, and to pay for them.

But some developments have no real amenities and yet they have homeowner associations. In some cases, the fees to the homeowner’s association are to care for small areas of land that identify the development along with insurance that might be needed over some land or common areas owned and maintained by the homeowners association for the benefit of all the homeowners.

As the monthly assessment you’d being charged is small, there may be only a small common area or amenity you will share expenses for. This amount might also add to the building’s reserves in case there is an upcoming shared expense.

In different parts of the country, various purchase and sale agreements are utilized for different types of transactions. If you’re buying a single family home, the purchase and sale agreement would not include language relating to an association and likewise you would not have to close if title was burdened by a homeowner’s association.

If your form purchase agreement includes language relating to a homeowners association, was that portion of the document completed? In most instances, form contracts will indicate what the monthly dues are to the association and also include language that expressly provides that you agree to take title to the property subject to the association documents.

You should look at your purchase contract and see what it says. You should also look at any seller disclosure documents given to you. In some states, your seller would be obligated to give you a disclosure about the condition of your property and in some cases that disclosure extends to some issues relating to an association. If you received the disclosure and the seller didn’t have to disclose anything else in that form regarding the association, you may have simply overlooked it.

Some states have additional laws that require the seller to deliver documentation to you specifically regarding any association that involves the home you’re buying. In some cases, you have the right to review that documentation and if it is materially different from what was disclosed to you, you might have the right to cancel the contract. Cancellation of the contract will very much depend on what your contract provides.

In your letter, you mentioned that you’ve heard things about homeowners associations. Have you heard negative information about this particular homeowners association or just about homeowners associations in general?

Some homeowner’s associations do go overboard, but many others work just fine. Some homeowner’s associations have limited roles in a development while others regulate the type of flowers that can be planted on front yards, whether fences can be put up, when garbage can be taken out, where cars can be parked, and so on.

From the fee you are paying, it seems as though your homeowners association may not have a huge role to play in your living at the development. Certainly some associations have a greater role than others, and you’d be wise to get a copy of the association documents plus the current association budget and minutes for the last two years of board meetings. These will help you determine what role the association will play in your life.

For more specific information on the cancellation of the contract and your obligation to close, you will have to talk to a real estate attorney.

See here for other articles discussing cancellation of contract before closing or cancellation of contract may lead to lawsuit

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Related Topics

• breach of contract, 
• contracts, 
• home buying, 
• homeowners association, 
• real estate advice

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