Despite the low inventory and tough competition, 40% of Americans are thinking about moving in 2022. In the survey from LendingTree, a good portion of those (39%) are considering moving out of their current city or state. Some of the most popular destinations on their radar are Florida and Texas.
With warm weather, sunny beaches, and lots of space, both states offer many amenities these movers desire in a new home.
Between the two states, there are approximately 5.5 million properties located within some sort of HOA community. In Florida alone, 67.3% of homeowners are members of a community association!
Chances are, the next home bought in one of these states will be governed by an HOA. In the latest State of the TItle Industry Report, 43% of respondents who work for title companies, underwriters, or real estate law firms said they outsource HOA research, up from 30% the previous year.
There are three important factors title professionals consider when deciding to outsource this research:
- The laws governing the HOA and their right to lien
- The additional paperwork and property research
- The benefits of outsourcing association research
Related Reading: Common Misconceptions about HOA Properties
Community Association Laws
In every state, there are laws dictating how communities can enforce their rules and regulations and the rights of homeowner members when conflicts arise. Owning a home in an HOA can come with some perks, but they come at a price.
Any unpaid assessments from the community association may attach to the property as a lien. A code violation for the wrong shade of exterior paint, late fees for outstanding dues, or an unpaid special assessment will likely become the liability of a new owner if they aren’t resolved before the sale.
Watch the video below to learn more about the important HOA documents to review.
Pay special attention to the Declaration of Covenants, Conditions, and Restrictions (sometimes called the CC&Rs or simply Declaration) as this document officially establishes the community association, explains the rules or covenants guiding the association, and subjects the land described in the legal description to the control of the association and its members.
The terms found in the declaration trump any provisions found in other governing documents that may contradict it. Because the declaration takes such precedence over every other document, it’s often referred to as the “constitution” of the association.
If a homeowner in an association doesn’t abide by the rules or pay their dues, they may be issued a violation notice and a fine. If fines aren’t paid, they can become a lien.
In Florida, associations can place a lien on the property once the past dues reach over $1,000.
Perfecting an Association Assessment Lien
Usually, a lien against a homeowner is filed in the public record, but that’s not always the case for community associations.
How associations file liens and begin foreclosure proceedings depends on state statutes and:
- Association type – the laws applied to condominium and subdivision developments can differ significantly. The best way to determine which types of association a property is governed by is to reference the legal description. The word “lot” indicates it’s part of a platted subdivision, but if the property is described as a “unit” or “apartment,” it’s a condominium association.
- Declaration Text – the Declaration outlines the requirements of each member, like paying assessments, how payments will be enforced, and the right to lien against a delinquent homeowner’s property for non-payment.
Many associations insist that the filing of the Declaration specifying the right to lien is enough to perfect or create the lien. A notice of the lien recorded in the official public records is not required.
In Florida, this assertion has been tested and affirmed in court rulings. In Calendar v. Stonebridge Gardens Section II Condomimum Association, Inc., a property was sold at a tax deed sale, and the association claimed it was entitled to the surplus funds. However, the former owner also filed a statement of claim against the surplus funds. The former owner argued that the association wasn’t entitled to the money because no official lien on the property was filed in the public record. The court ruled in favor of the association, saying, “where a declaration of condominium is recorded, such as in the instant case, recording a claim of lien is not an absolute prerequisite to the enforcement of a lien for unpaid assessments.”
The Texas Uniform Condominium Act automatically perfects such liens by recording that type of association’s declaration, but there’s no such explicit law for Subdivision Associations. The language of a subdivision’s declaration must explicitly state the creation and reservation of assessment liens is evidenced by the recordation of the declaration.
Community Association Foreclosure Proceedings
In general, liens that go unaddressed by a homeowner may eventually lead to foreclosure proceedings. There are two types of foreclosure proceedings in the United States based on either lien theory or title theory:
- Judicial foreclosure
- Non-judicial foreclosure
Florida is a lien theory state and requires creditors including associations to follow a judicial foreclosure process.
In Texas, a title theory state, it’s a bit more complicated. The Texas Uniform Condominium Act authorizes condominium associations to foreclose assessment liens by either non-judicial or judicial procedures. Subdivision associations don’t have the same law, and may only foreclose by non-judicial procedures if it is explicitly written in their declarations.
Additional Research for HOAs & COAs
If the HOA or COA isn’t always required to file individual liens against the property, how do title professionals track down this type of lien?
Additional paperwork known as an Association Estoppel in Florida and a Resale Certificate in Texas must be ordered from the association to confirm there are no pending violations, unpaid dues, liens, or other financial liabilities.
Each state also has rules on how, when, and the cost of obtaining this information from the association.
The Florida HOA Estoppel law dictates that an association:
- Must cap the cost of this information at $250
- May charge a maximum of $500 for an expedited request
- May add a fee of $150 if delinquent amounts are owed
- Must deliver the information within ten days of the request
- Must include specific information set out in the law
- Provide a refund for the initial fee if the real estate contract is canceled
Recent changes to Texas laws governing subdivision association include:
- Require associations to file declarations and other dedicatory instruments with the county and provide certain contact information on these instruments
- Associations with at least 60 lots or a contract with a management company must maintain websites with management certifications, meeting information, and notifications
- Capped fees for subdivision information at $375 and $75 for updated resale certificates
- Require delivery of the information before the fifth business day after the second request for the information
If the association fails to provide the information, the owner may either seek a court order to obtain the information, a judgment against the property owner’s association for up to $5,000, a judgment against the association for court costs and reasonable attorney fees, or a judgment authorizing the owner to deduct the amount awarded by a judgment from future regular or special assessments.
Alternatively, the association may give the buyer an affidavit that states the owner, owner’s agent, title insurance company or its agent acting on behalf of the owner made two written requests to the association and the association failed to provide the information in time.
These changes create more urgency on the part of the association to provide the information quickly so the closing isn’t delayed. This is especially important to the seller as they are usually the ones charged for the preparation of the certificate in the closing contract.
Benefits of outsourcing HOA research
Although these changes to state statutes capping fees and requiring timely delivery of HOA information is a positive for title insurance companies, it doesn’t eliminate all of the pain points when coordinating closings for properties governed by associations.
Outsourcing certain aspects of title production has become more common as title order volume rises and more experienced title workers reach retirement age. In the past, association research was rarely one of them, but the results of the latest State of the Title Industry Report show more title professionals are turning to title support services for this information.
When we asked our clients why they turn to PropLogix for help with association certificates, here are some of the reasons they gave:
- Time – the biggest pressure at play is the lack of time title agents have on their hands. When association information is required in the title commitment, the agent knows that it means more time emailing, calling, or faxing another party to confirm the property is clear to close. That’s time away from the client or handling other complex title issues.
- Simplified ordering process – Although many state laws require that associations designate a person or entity (usually a management company) with a street or email address to receive these requests, finding that contact information can still be like searching for a needle in a haystack. Ordering an estoppel with PropLogix is easy. Simply input the property information on our website when placing an order or through one of our title production software integrations.
- Easy cancellation and recouping of refunds – The title insurance company or law firm must upfront the fees to obtain the HOA information for the closing. Usually, the title insurance company is entitled to a refund from the association if the buyer or seller backs out of the deal, but this means more time for following up with the association. As a result, some agents delay ordering the estoppel or resale certificate to avoid the extra step if the deal falls through. If a cancellation of contract is provided in accordance with state statutes, agents no longer need to worry about chasing down the refund.
Learn more about ordering HOA information with PropLogix and customize pricing options to suit your business needs.