Understanding the HOA disclosure game

The RA-CAI-RE Triangle, Part 3[i]

CAI, the real estate interloper

gorilla6

400 pound gorilla gets whatever he wants

Before I proceed, let me say upfront that I, and all advocacy groups should, reject CAI’s presence and role in purely real estate matters.  It has no valid legitimate interest in attending stakeholder meetings held by ADRE.  As I see it, CAI is an interloper into HOA real estate matters and attends these meetings to gather info and to influence any proposed legislation that it finds detrimental to its, CAI’s, interests.  CAI has no legal authority, even as a friend of the court, to speak for any HOA on public matters.  ADRE should acknowledge that CAI speaks for itself and should be given little weight unless the advocates have a lawyer present.

To understanding the disclosure ‘game.’

The legal requirements for disclosure pertaining to HOA sales is a complex set of laws and court opinions involving 3 different parties: the seller, the seller’s real estate agent, and the HOA. Speaking of Arizona, and probably pertaining to other states as well, the simplest of the 3 are the HOA obligations under the PUD and Condo “Resale” statutes, ARS 33-1260 and 33-1806.  These statutes are essentially copied and made part of the HOA Addendum (lines 30 -50) to the residential purchase contract.  Note that the Addendum was created and published for use by AAR, and is not a required state form.

However, the seller is involved if, for some arbitrarily set number, there are 50 or less units. But, where does the seller get the info? From his HOA, of course.  He doesn’t make them up, does he?  This aspect of mandatory disclosure has been the target of much proposed reform legislation.  I leave this topic to a committee of the advocates.

My focus is on the other 2 entities involved in HOA disclosure: the seller and the seller’s agent.  The central issue for both is, what must be disclosed.  The general law – common law — on seller and seller agent disclosure can be found in the Restatement of Contracts, the Restatement of Torts, and the Restatement of Agency.[ii]

Addressing the agent’s legal requirements, ADRE Commissioner’s Rule (Arizona Administrative Code) R4-28-1101 is basically a copy of the general agency law found in note 2.  Specifically, agents must treat all parties fairly and divulge material information “that they” possess.   Interestingly, the AAR generated forms[iii] are silent on agent obligations.

In case you are wondering, the ADRE Commissioner Rules, R4-28-101 defines ‘material change’ as: ‘‘[M]eans any . . . change that has a significant effect on the rights, duties, or obligations of the developer or purchaser, or use and enjoyment of the property by the purchaser.”  “Material” having the common meaning of “significant”, “important,” “relevant,” “essential.”  ADRE has not enforced R4-28-1101.

Addressing the disclosure obligations by the seller, we have a continuing story.  Forms are prepared by AAR and not reviewed or approved by ADRE.  ADRE has not set any standards for CC&Rs, or disclosure statements, or the purchase contract, leaving it to the real estate trade association, AAR.  The intimidating SPDS is not an ADRE required form but a work product of AAR tied to the purchase contract (section 4a, page 4).

The HOA addendum is not a statutory form but one required by the AAR purchase contract under a check-off box (line 28, page 1). The legal basis for seller disclosure is grounded in Lombardo v. ALBU is also material disclosure, even to disclose when asked a question by the buyer.[iv]

 

It can be asked: Are constitutional rights and freedoms material or not in an HOA controlled purchase?  If not, why not?  It is common knowledge that there are issues with HOA living, but the RAs and REs have sealed lips.   CAI is also silent in its educational seminars, newsletters, guides, brochures, etc. In Arizona, the municipal sponsored seminars[v] under the trade name, HOA Academy, and conducted by CAI attorneys are also silent on disclosure. “See no evil hear no evil, see-no-evilSspeak no evil.”  The buyers are kept in the dark as to the legal, financial, and social consequences of buying an HOA controlled property by this private-public partnership.

 

References

[i] I use the following notation in this series.  “RA” is the collection of the national and state chartered Realtor associations.  “CAI” is the Community Associations Institute.  “RE” is the collection of state real estate departments.  Specific organizations will be identified as such: “NAR” is the National Assn of Relators; “AAR” is the Arizona Assn of Realtors; “ADRE’ is the Arizona real estate department.

[ii] Restatement (Second) of Contracts § 161; Restatement (Second) of Torts § 551; Restatement (Second) of Agency § 350.   See Arizona Supreme Court opinion in Lombardo v. ALBU, 14 P.3d 288 (Ariz. 2000).

[iii] See Seller Purchase Disclosure Statement (SPDS) and Advisory, HOA Addendum, and Residential Resale Real Estate Purchase Contract. Can obtain them from AAR.

[iv] Supra n. 2; in Lombardo v. ALBU, 14 P.3d 288 (Ariz. 2000).

[v] The municipalities include Surprise, Glendale (Mulcahy), Goodyear (Krupnick, Goodman, Mulcahy), Peoria, Chandler, Avondale (Krupnick, Goodman), El Mirage. The names in parenthesis are the dominant CAI attorneys. Several municipalities did not identify their attorney instructors.

Published in: on October 3, 2017 at 6:38 pm  Comments (4)  

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4 CommentsLeave a comment

  1. […] 3 (Understanding the HOA disclosure game) addressed the heavy influence, in Arizona, of AAR on ADRE where home sale transaction documents […]

  2. Clint Goodman volunteered to teach Scottsdale Neighborhood College today. He is on the CAI legislation action Committee. His topic was HOA Case Law that will make you cringe …or laugh. I suggested to the city organizer that they check out attorneys who want to teach. I mentioned the fact that I know that there are several bar complaints filed against Goodman. I doubt that he will asked to repeat the class again.

    • I met Goodman when he was a newbie attorney. He testified before the legislature in 2008 in favor of us advocates. See https://www.youtube.com/watch?v=vmKqX2j7HUY.

      Then he got turned by CAI a few years later, like CAI turns others.

      • Yep, and all funded by homeowners.


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