Addendum for Property Subject To Mandatory Membership in a Property Owners Association

Here after referred to as TAR-1922

The first paragraph of TAR-1922 reads as follows:

A.  Subdivision Information: "Subdivision Information" means (i) a current copy of the restrictions applying to the subdivision and bylaws and rules of the Association, and (ii) a resale certificate, all of which are described by Section 207.003 of the Texas Property Code.

Many buyer/sellers are familiar with the concept of restrictions and bylaws; but what is a resale certificate?  A resale certificate is part of what is obtained when obtaining subdivision information. 

The resale certificate should show the following: 

      1.       Amount of, date of and frequency of assessment.
      2.       Amount of late fees.
      3.       Past due assessments
      4.       Other  assessment amounts
      5.       Purpose of other or assessment – example pool keys are often
             other assessments and to be paid only by users of common area pool.

6.       Amount of active special assessment.

7.       Purpose of active special assessment – example – new subdivision parameter fence.

8.       Financial Information – is there community enhancement fees?

9.       If so how is Fee determined / calculated.

10.   Amount of money in the designated reserve fund intended to be used for long term capital needs.

11.   Capital expenditures

12.   Does the association have any active leasehold that effects the association?

13.   If a Unit/Home is acquired through foreclosure, is mortgage company responsible.

14.   Statement of Account – this is what the title company must have to issue clear title.  If the re-sale certificate is not part of the sales contract – for example the buyer waived the resale certificate.  The title company still must have Statement of Account.

For the purposes of this blog post from here down we will refer mostly to the resale certificate which is only one portion of the subdivision information as shown above.  To reiterate, subdivision information includes all three, the restrictions, bylaws and rules and resale certificate.  For the title company to give clear title on a property the title company must also have the Statement of Account.

The resale certificate itself has information on the property such as unpaid assessments or special assessments or lawsuits to common areas.

On or around 5/7/2012 Texas Legislation changed who could obtain and pay for resale certificate.  Previously only the seller could obtain resale certificate.  With new legislation the buyer now has the ability to obtain the resale certificate.   TAR-1922 clearly states who - buyer or seller will pay for resale certificate.

Regardless of who pays (buyer or seller) the resale certificate typically comes at a cost. Most home owner associations are managed by management companies. The resale certificate will cost typically no less than $150.00. The money must be paid in advance. The management company and or if self managed by the property owners association are protected; they have up until 10 days after being paid to produce the resale certificate.

In the past buyers often wanted resale certificate and often sellers did not want to pay for resale certificate.  The resale certificate in a real estate transaction can be a two edge sword.  Regardless of who pays for the resale certificate it is only good for 30 days.  

The second portion of paragraph A reads:  The title company or its agent is authorized to act on behalf of the parties to obtain the Subdivision Information ONLY upon receipt of the required fee for the Subdivision Information from the party obligated to pay.

TAR-1922 clearly outlines who (buyer or seller) will pay for this subdivision information/resale certificate.  It also states within how many days they will receive and deliver to the other party.  If the buyer is to pay the buyer must obtain and deliver to seller within the specified number of days.  If the seller is to pay then the seller must receive and deliver to the buyer within the specified number of days.

In a real estate transaction the time clock starts on execution date.  That is the date written into paragraph 24 of the agreement numbered TAR-1601 and named “One To Four Residential Contract (Re-sale).  From there most other dates state “Within _______ days after”.  If execution date was August 23, 2012 and if the resale certificate had to be delivered within 15 days it would be within 15 days after the execution date.  In this instance it would mean that delivery of resale certificate must occur no later than August 30, 2012 – After execution date and within the specific number of days.

Failure to obtain and deliver the resale certificate can void the contract. AND, once the subdivision information is IN THE HANDS OF THE BUYER - it in essence this gives the buyer ANOTHER OUT.

It's no wonder that seller's want to say to buyers (there is a box that can be checked - the box reads) Buyer does not require the delivery of the Subdivision Information.

The (4) choices under A on TAR-1922 – one box must be checked.

1.  Within _____ days after the effective date of the contract, Seller shall obtain, pay for, and deliver the Subdivision information to the Buyer.  If Seller delivers the Subdivision information, Buyer may terminate the contract within 3 days after Buyer receives the Subdivision Information or prior to closing, whichever occurs first, and the earnest money will be refunded to Buyer.  If Buyer does not receive the Subdivision information, Buyer, as Buyer’s sole remedy, may terminate the contract at any time prior to closing and the earnest money will be refunded to Buyer.

2.  Within _____ days after the effective date of the contract, Buyer shall obtain, pay for, and deliver a copy of the Subdivision Information to the Seller.  If Buyer obtains the Subdivision Information within the time required, Buyer may terminated the contract within 3 days after Buyer receives the Subdivision Information or prior to closing whichever occurs first, and the earnest money will be refunded to Buyer.  If Buyer, due to factors beyond Buyer’s control, is not able to obtain the Subdivision Information within the time required, Buyer may, as Buyer’s sole remedy, terminate the contract within 3 days after the time required or prior to closing, whichever occurs first and the earnest money will be refunded to Buyer.

3.  Buyer has received and approved the Subdivision information before signing the contract.  Buyer __ does __ does not require an updated resale certificate.  If Buyer requires an updated resale certificate, Seller, at Buyer’s expense, shall deliver to Buyer within 10 days after receiving payment for the updated resale certificate from Buyer.  Buyer may terminate this contract and the earnest money will be refunded to Buyer if Seller fails to deliver the updated resale certificate within the time required.

4.  Buyer does not require delivery of the Subdivision Information.

Most sellers have until recently only looked at the resale certificate as an extra expense. Now that the expense can be that of the buyers - many sellers’ view differently.

At the end of the day the buyer has many ways out of any contract – the resale certificate is merely one more out for the buyer.

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