HOA Litigation Doesn’t Have To Stress You Out About Selling Your Home. However, You Need To Play It Right
There’s nothing that throws a wrench into your plans to sell your home like lingering HOA litigation. Believe it or not, lawsuits involving homeowners associations have prevented thousands of homeowners from selling their homes.
The Community Associations Institute estimates there are 345,000 to 347,000 community associations in the United States as of 2017. Thus, nearly 26.3 million households and roughly 69 million residents live under homeowners associations.
Most HOA litigation stems from unpaid member dues or spats between board members. Litigation can also stem from construction defects from the original developer or a contractor who worked on the project. It’s the litigation over construction that makes lenders and sellers nervous.
Most lawsuits don’t cause a major problem for home sales. However, buyers and lenders stay clear if an HOA board is unable to function peacefully and effectively. Questions about the structural integrity of the building or the homes also scare away potential buyers.
HOA Litigation Doesn’t Have To Derail Your Sale
Surviving HOA Litigation Tip #1: Disclose what you know.
Disclosure laws vary by state when it comes to real estate transactions. However, that doesn’t mean you should ever hide what you know. Especially if it’s something that could turn off a potential buyer.
You certainly don’t have to shout “pending litigation” from the rooftops. There is also no need for your real estate agent to include it in marketing materials. However, providing the information is important to share to interested buyers.
By volunteering the information on a lawsuit, you have the ability to frame it with proper context.
Surviving HOA Litigation Tip #2: Talk to your HOA board.
Sellers should always err on the side of transparency and should be in constant communication with your HOA. The board may be sharing information with other potential buyers on the situation. If not, don’t hesitate to share the information with the potential buyer.
Certain states require the seller to disclose HOA litigation. While others don’t.
Surviving HOA Litigation Tip #3: Accept that some buyers will be turned off.
The HOA litigation may be no fault of yours. However, you should accept that some buyers will have a blanket “no” policy when it comes to active litigation involving the association.
You need to accept that your pool of potential buyers shrinks dramatically when issues like this happen. However, this is no different than buyers who don’t want to renovate a kitchen.
Surviving HOA Litigation Tip #4: Expect most major lenders to say no.
A key factor contributing to many buyers’ negative attitudes toward HOA litigation is the mortgage lender refusing to fund the transaction. Fannie Mae and Freddie Mac won’t purchase the mortgage in the aftermarket if a COA or HOA is in pending litigation. Thus, this makes the condo non-warrantable. Therefore, most major banks won’t approve the loan.
Credit unions and some non-bank lenders may consider the property based on the circumstances of the lawsuit. However, they look at other factors including negotiated price and the size of the down payment. Of course, the final decision is up to the buyer.
Surviving HOA Litigation Tip #5: Be willing to go lower on the price.
Unfortunately, litigation may mean you have to price your property more competitively. With a lower asking price, you’re more likely to attract serious buyers who are willing to look past the litigation and consider the other positives.
Surviving HOA Litigation Tip #6: Consider waiting out litigation.
Real estate experts say that your best bet is to wait out the litigation if you can. If you have to move immediately, you should consider renting out the condo or house for a year or two so you can collect rent to cover the mortgage while litigation plays out.
Keep in mind that any lawsuits involving HOA litigation can be fairly simple. However, actions against the developer for defective construction of single-family homes and enforcing construction restrictions among members can create long delays.
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