02/25/07: What Does A Seller Have to Disclose?
By Benny L. Kass
Q: You once wrote that the condominium resale certificate that a potential buyer must receive should disclose any outstanding assessments. Is a seller required to disclose that there is a large upcoming assessment due to known problems in the entire complex? The condominium documents I received when I purchased my unit were outdated and incomplete, but because it was so close to the closing date, I foolishly completed the transaction. How do I determine if my seller knew of these problems and the pending assessment?
A: What can I tell you? You have already admitted that you foolishly went to settlement without doing your homework.
In many jurisdictions (including Maryland, Virginia and the District of Columbia) potential condominium buyers are entitled to receive what is known as a “resale certificate”. This is a document which spells out a number of important aspects of the condominium you are planning to purchase, from the amount of reserves in the association, to whether there is any pending litigation against the complex.
This certificate also should contain the current legal documents of the association, as well as the most recent budget and the most current audited statement from the association’s independent CPA.
It will also advise a potential purchaser whether there are any special assessments which have to be paid.
Where there are such assessments, my experience is that buyers and sellers will negotiate who is to pay them and when an agreement is reached it will be included in the purchase and sales contract. Typically, a seller will agree to make the payment, but that is not always the case. Some sellers take the position that they will not pay the balance of the special assessment since it will only benefit the new buyer.
But your situation is different. When you received the resale certificate, there was no formal assessment imposed by the board. It was only in the planning stage.
You had the opportunity to do your homework, but unfortunately you were too much in a hurry to close on your condominium unit. You should have requested updated copies of the financial documents, and you should have discussed the status of the condominium with one or two board members as well as the association’s property manager.
Regardless of the cost of your unit, I am sure that it was a significant investment for you. Yet you opted to ignore the warning signs, and you failed to exercise the rights provided you by statute – namely the right to receive – and review – the financial state of affairs for that association.
But even if you did carefully examine this information, at the time you signed your sales contract no such assessment was in effect; it was only a possibility, and not a reality.
What if you determine that your seller knew about the upcoming assessment? Does that make him legally obligated to disclose this to you? Under the disclosure requirements imposed by statute, the seller must only disclose known conditions about the unit you are considering to buy, and not the entire complex. The burden to disclose common element issues rests with the association, and not the individual unit owners.
Did you ask the seller if there are any special assessments pending? If so – and if the seller knew about those issues and lied to you – that would change my opinion as to his potential liability. But proving knowledge will not be easy. Obviously, if the seller was a member of the Board of Directors at the time you signed the sales contract, that might make a difference.
But unfortunately, too many condominium owners just do not take the time – nor care – to educate themselves as to the operation of the complex in which they live. Apathy runs rampant in many community associations. All too often, the only time that owner’s complain is when their monthly condo fees are increased or when there is a special assessment promulgated by the Board.
It still is a mystery to me why potential condominium buyers spend more time deciding what computer or cell phone to buy than they do when purchasing the home in which they plan to live.
The legislatures have given us the tools with which to make educated decisions; potential homebuyers should make full use of this opportunity.