HOAs & Capital Reserves – The Changes You Need to Know

Explanation of Condo Contract Paragraph 12 (3) & Addendum for Mandatory Membership in HOA Paragraph C

When contract changes occurred on April 1, 2021, many of us were focused on what was added and failed to notice what was removed altogether or lumped into one paragraph. Such is the case with paragraph 12 (3) in the Residential Condominium Contract (Resale). Watch now as Kristi Davis of MetroTex Forms & Contracts Committee and Charles Kramer of Republic Title discuss the changes you need to know.

Paragraph 4 was removed stating that any deposits for reserves required by the association would be a Buyer expense. In its place, paragraph 3 changed to include these charges and more. From paragraph, “3) Buyer shall pay any and all Association fees, deposits, reserves and other charges resulting from the transfer of the Property not to exceed $ ___________________ and Seller shall pay any excess.”

This paragraph, both Condo and Addendum for Mandatory Membership, now includes any reserve for dues, capital expenditures, transfer fees, and any other fee an owner’s association or management company chooses to throw in there. It is not uncommon for an association to take a few months dues up front until they can get the new owner in the system. This is now lumped into this line item.

Charles Kramer, (Co-Chair of the Broker-Lawyer Committee), explained this best. “Any fee/amount (other than the cost of a resale certificate, which cost is allocated under para. 2C) that would not have occurred or been charged if this property did not sell, should go in this line.”

Needless to say, this amount can add up very quickly with just a few months of dues thrown in there added to capital expenditures etc. The best practice would be for the listing agent to have the seller order the resale certificate immediately so there are no surprises when this fee is disclosed and this paragraph can be filled out fairly to both parties. No one wants to put the seller in the position of finding an additional closing cost possibly in the thousands. A resale certificate is good for 3 months and some title companies allow 6 months.

– Mary Beth Harrison, MetroTex Forms & Contracts 2020 Committee Chair