Members have been asking about buyers’ ability to terminate contracts under the first two checkboxes of Paragraph A, Subdivision Information, of the Addendum for Property Subject to Mandatory Membership in a Property Owners Association (TXR 1922, TREC 36-9).
Under Checkbox 1, if the seller delivers the subdivision information, a buyer can terminate within three days after receiving the information or prior to closing, whichever occurs first. If the seller doesn’t deliver the information, the buyer can terminate the contract at any time before closing.
Under Checkbox 2, if the buyer obtains the information within the specified time frame, the buyer can terminate within three days after receiving the information or prior to closing, whichever occurs first. If the buyer can’t meet the specified time frame through no fault of the buyer, the buyer can terminate within three days after the time required or prior to closing, whichever occurs first.—Laura Miller, staff attorney
Is this a legal loophole for terminating for any reason after the Option period, or even if there was no option period?
This is not a loophole. It just insures the buyer received these important documents in a timely fashion. A wise agent would instruct the seller to immediately order the subdivision information. If you are familiar with the addendum you know paragraph 3 acknowledges they have already received the information so there goes your so called “legal loophole”
“a buyer can terminate within three days after receiving the information or prior to closing, whichever occurs first.”
Doesn’t matter if the seller orders immediatly, the buyer can terminate within 3 days after receiving.
Inspections are not only for option periods. A buyer might entice a seller with a “no option period offer/contract”, asking only to obtain the subdivision documents at buyer’s own expense. There is nothing to keep the buyer from moving on with inspections (even though there is no option period) as the buyer would have the right to terminate based upon the subdivision documents.
Sellers should consider ordering the Subdivision Docs upon Listing their property. The Docs are not expensive but many times can be a real pain to obtain. Upon receiving the Docs Buyers may find legitimate reasons to decide they do not want to live in the community.
I agree 100%
Some HOA’s have an expiration date on the information, so if ordered early, it could expire and have to be reordered.
Some subdivisions’ cost are over five hundred dollars. I do not call that inexpensive. just sayin
There are subdivisions in the San Antonio area that have 2 to 3 layers of HOA’s. The total comes out to around $1500. So I completely agree that “inexpensive” is a subjective description.
Is a “legitimate reason” needed? Nowhere in the contract does it state it must be “legitimate”, only that they can terminate within 3 days.
I agree w/ Joseph… this is a bad loophole that needs to be “curable’ or avoided… it’s a SUPER OPTION PERIOD extension and its being misused, Would like Broker/Lawyer committee to change the language.
I totally agree
Exactly what my thoughts were Bob, you described it perfectly… a “SUPER OPTION PERIOD”.
I totally agree. In many cases it takes 20+ days to obtain the subdivision information and this is a reason to terminate too far down the line. Fortunately, I haven’t had this occur. Resale Certificates are in the name of the Buyer and those can’t be ordered in advance when we get the listing. We can provide deed restrictions early in the process, but that’s not the whole definition of subdivision information. I’d be curious to hear from REALTORS on what they are doing to prevent possible terminations for this reason.
The issue is the resale certificate and HOA documents contain lots of important disclosures and info such as special assessments, lawsuits, delinquent dues, money in reserves, is the property in violation for anything, mandatory transfer fees and deposits, HOA financials, etc. Doubly important when it’s a condominium. The review period is similar to how the sellers disclosure is handled in the resale contracts – if it’s not provided upfront then buyer has a review period after receipt. If the seller wants to prevent this additional 3-day window for the buyer to back out of the purchase, a good practice is… Read more »
totally agree. Take that language out!
The state needs to address the rules for HOA’s (again – again, again – what is this, the 4th update recently) and require that the CC&R’s be available upon request or posted online. These aren’t secret documents, and anyone that already owns a property within would have them. The statement of account and re-sale certificates are a different story. We need clarity as to whether the statement or re-sale certificate would apply toward the 3 day cancellation option. I don’t see those last two docs as being an available resource to terminate a contract.
check the box that says the buyer does not require delivery of the subdivision information… solved.
Under Checkbox #1, if Seller delivers the subdivision information after the specified time frame, does the buyer still have 3 days to terminate or prior to closing, whichever occurs first? Or does this change the Buyer’s termination time frame if the Seller delivers the subdivision information late?
Resale Certificates for Condos must meet statutory requirements. Some HOA management companies will try to use old budgets or other noncompliant balance sheets which do not inform the buyer. This requires an attorney to give a legal opinion so best to have your buyer always hire an attorney when evaluating a Resale Certificate compliance with the property code.
This is a two edge sword, in that – many sellers (via instruction from the listing agent), check the box that states “buyer does not require, delivery of”. The listing agent does this when they list the property. The listing agent will then upload the already “signed by seller”, document (denying buyer’s right) with the seller’s disclosure and other disclosures. This is a clear signal to the buyer that the seller does not want to grant the buyer this right EVEN IF BUYER IS WILLING TO PAY. If the buyer does not go along… well then, we know that buyer’s… Read more »
So to be clear when the buyer receive the information it is not that they can cancel & receive their earnest money during the 3 days, they must prove legitimate reasons they do not want to live in the community?
I don’t think you have to state any grounds for termination, but just have to do it in the prescribed window.
How would the listing agent orr seller know that the buyer wouldn’t want the subdivision information? Shouldn’t the buyer e the only one to select box 4?
I agree – all too often the listing agent fills out the HOA Addendum and posts it with the listing. This document should be completed by the buyer, not the seller.
How can a seller predict what the buyer wants? Isn’t it a buyer option to select box 4 and isn’t it the sellers option to agree or disagree with the selected box?
I don’t see how a listing agent or seller can simply check box 4 telling the buyer “you don’t want the subdivision information”
What if the HOA docs are not 100% complete? For example, I recently had a buyer that was purchasing a home and the HOA docs stated the HOA would maintain the front yard. (A later HOA doc, that was not provided by the seller,got rid of that amenity). My buyer ended up cancelling the transaction, and losing their earnest money.
It looks very much like an option contract with no seller compensation to me. Check boxes 1 and 2 basically give the buyer the unrestricted right to terminate during the specified time period and I have seen it used and abused for this very purpose. If a buyer has 10 days to obtain the paperwork under checkbox 2 and uses all of that time to obtain the HOA information and then terminates within the 3 day review period they will have had that property essentially off the market for 13 days with the unrestricted right to terminate. Why waste non-refundable… Read more »
I live in an HOA controlled community. Since my father was on the board for a good time, I knew some of the negative and positive attributes of living in an HOA. However, the rules and regulations change frequently and it is hard to keep up with all of the changes since the board and general management change frequently. I would encourage any realtor working on properties in an HOA to keep up with the rules and regulations (as much as possible) since it can have a profound influence on the enjoyment and value of properties located in the HOA.… Read more »
What if buyers had to obtain the hoa docs as part of their due diligence?
This is nothing more than a “get out of jail free” clause. It is a loophole that is very unfair to sellers. It does not even ask the buyer to explain what they found wrong with the Subdivision documents. This is a hole in the contract that needs to be remedied immediately. Most agents do not know about this loophole or they encourage their buyers to use it when the buyer wants out and the option period is over. Buyers can walk for any reason and use this as a ruse for them walking. A buyer should be forced to… Read more »
I’ve lost contracts to this clause several years ago. I do exactly what some have suggested. I have my Sellers the docs minus the resale certificate prior to listing. They are provided to the Buyer no later than the second day of the option period. These are sent via email.
I think Texas should change to the way Arizona does the inspection period. There is no option period that the buyer has to pay for. Instead, there is an “inspection period” with no cost to the buyer, where the buyer has a set number of days (10 days by default but can be changed) to conduct all inspections, pool, roof, A/C, review all HOA docs, review zoning, schools, crime stats, anything and everything a buyer may be concerned about. They can end this period at any time but not longer than the stated days in the contract, by giving the… Read more »
All good points but I like this suggestion
I was told by the seller’s realtor that I cannot use form TXR 1922 Property Subject to Mandatory Membership in an HOA but he can’t tell me which form I should use. Can someone tell me the correct form to use for condominiums?
I think I found it Form 36 -8?
Sorry it says Not for condominiums.