What is an HOA Resale Package and Do You Need It for Closing?

To close a real estate transaction, you would usually need a resale package of documents, that is varied per state. A standard HOA resale package has two parts: a resale certificate and a collection of governing documents, like CC&Rs, Bylaws, Budget, Balance Sheet, and Reserve Study.

Resale Certificate (Estoppel) 

The resale certificate provides specific information about the home in the transaction and its standing in the community association. It includes any past-due payments to the association, pending violations, unpaid violations, unpaid special assessments, and fees that are due upon closing.

The Resale Certificate has different names depending on the state. Here is a breakdown of the naming variations in some of our favorite states:

• HOA Demand
• Demand Letter
• Payoff Statement
• Resale Demand
• Escrow Demand 
• Statement of Account
• Closing Letter
• Status Letter
• Trustee Letter

And then there are several supporting documents that are usually required as a part of the resale package, like CC&Rs and bylaws. Let’s have a closer look.

CC&Rs: Covenants, Conditions, And Restrictions

CC&Rs are legal document that lists all rules, restrictions, responsibilities, and guidelines for the residents and the properties under an HOA. These are legally binding documents that define what is allowed and prohibited for the homeowner or borrower. 

CC&Rs can impose leasing restrictions, like a minimum lease duration of 12 months. This could make the property a bad investment decision if the goal is to turn it into a short-term rental. If the person living on the property violates the CC&Rs, they can face serious penalties from the association, which is why you need to make sure to have it in your resale package.

Although CC&Rs vary widely depending on the property and the association managing it, there are some common restrictions and requirements that we often see in our work. Below are some of them.

Property maintenance

The CC&Rs might require you to mow your lawn regularly. Or the CC&Rs might state that you can’t allow the home’s exterior paint to peel. Some HOAs provide lawn care and home 

maintenance services, like exterior painting. Other HOAs expect homeowners to take care of these duties themselves.

Home Decorations

CC&Rs could limit the creative flow of house decorations, either permanently or temporarily. Or they could determine the color of the curtains and front door, for example.

Pets

Some CC&Rs prohibit specific pets, like livestock or certain dog breeds, or limit the number of pets a property can have.

Parking

CC&Rs sometimes prohibit vehicle parking in specific areas and limit overnight guest parking.

Garbage/Unsightly Items 

The CC&Rs might require trash containers, utility meters, and clotheslines to be enclosed or appropriately hidden from the viewer’s eye.

Although these sound pretty normal, there are some of the less standard requirements an HOA might have. The CC&Rs could restrict the height of fences, prohibit political signs, or prevent the owners from decorating their parking spots.

Bylaws

HOA bylaws are rules created by an association that outlines how the community and association should operate. Once formed, the HOA typically adopts a set of bylaws. These describe how the association is run, set out voting rights and procedures, and contain rules for things like how often meetings must be held. The bylaws might also describe the association’s rights and responsibilities. 

You need bylaws in the resale package to have a clear understanding of the powers of the HOA board of directors, the rules for meetings, and membership requirements. Bylaws also dictate how the operations of the board of directors affect residents and how the communication between the board and residents should happen.

Financial/Budget/Reserve study

These documents state the financial position of the HOA – in short, the income and expenditure of the abovementioned HOA. Specific details must be included on an HOA financial statement depending on community bylaws and state regulations; however, the following are items that should be on a financial statement regardless of community association location or size:

• Balance sheet — Showing the HOA’s assets, liabilities, and equity
• Bank statements — Detailing deposits and debits that have cleared the bank
• Reserve fund balances — Money set aside to cover expenses on future projects or unforeseen shortfalls
• Statement of income — Detailed accounting of money coming into the HOA through assessments, dues, fines, and fees

Why is a reserve study so important for the resale package? It is a thorough analysis of the financial state of an HOA, which includes both financial and physical analyses of the property. The goal of the reserve study is to analyze whether the HOA has sufficient funds when those anticipated major common area expenditures occur.

Simply put, an HOA reserve fund is the amount of money an HOA has for bigger repairs, like roofing, pipe maintenance, etc. In an ideal situation, a reserve fund would be able to cover 100% of the future repairs. This scenario is not very realistic, so a reserve fund of 70% is considered a solid foundation for calm and happy living in an HOA-managed apartment. 

Insurance Documents

In the resale package, this document refers to the insurance coverage for the HOA and the property. 

HOA insurance covers:

• Building exteriors that belong to the association.
• Shared space and property that belongs to the association.
• Liability for incidents that happen in shared space.

HOAs can require homeowners to get additional insurance depending on the circumstances, like having a gym in the building that allows external visitors. So same as home insurance protects the inside of a home, HOA insurance protects the outside, (and common areas).

Not all of these documents are required all the time in all states. If you want to be sure what should be in the resale package for closing in your state and don’t want to deal with acquiring these documents, ask us to do it for you.