Full Disclosure: How much is too much?
Community associations often deal with situations that they must disclose to buyers or lenders as part of the documentation provided in a real estate transaction. Typical disclosures that associations must give include (1) whether the association is involved in litigation and (2) whether a special assessment has been levied. Litigation and special assessments seem easy enough to disclose. But the obligation to disclose, or the liability for not disclosing, is less clear with respect to threatened litigation or a special assessment under consideration but not yet approved. Associations should consult with legal counsel when a situation does not fall squarely within the mandatory disclosure categories. Failure to disclose may result in liability for the association, but giving too much information can also cause problems for an association.
As examples, associations tread into murky disclosure areas with respect to the following areas:
Ongoing disputes between the association and a particular owner or group of owners that does not involve litigation. In general, associations should neither hide nor embellish the facts regarding an unhappy owner’s impact on the community. A protracted dispute, much like a potential lawsuit or special assessment, is not a mandatory disclosure for associations or sellers.
Associations must think about the affect of disclosing damaging, and not mandatory, information, while also ensuring enough transparency that buyers are not caught completely off guard. In determining whether to disclose a litigious member’s presence in the community, the association should consider a variety of factors, including what information is readily available to a buyer in association minutes and other records and how disclosure of too much information may impact the sale of a unit. If the association overstates a potential issue and the buyer backs out, the seller may blame the association for interfering with the real estate contract.
To help avoid disclosure dilemmas, I recommend that boards routinely document any disputes between their associations and owners as part of the meeting minutes. Such documentation need not identify which unit owner is involved in a dispute. Rather, the board can note the general subject matter of the dispute. The board should also document when a matter is turned over to the association’s attorney, without identifying the unit owner involved. By including this type of documentation in meeting minutes, a buyer should have the opportunity to review any relevant information from at least the most recent six months of meetings before the sale closes.
Criminal activity within the community. I generally recommend that associations not get into the business of providing crime reports (including information about the presence of sex offenders) to owners or buyers. Criminal activity is tracked by local law enforcement. People interested in knowing what activities have occurred in a specific area can access the information through their own research, which may include law enforcement publications.
Without disclosing actual criminal activity, associations can provide resources to owners about how to get crime information for their communities. If crime is a problem, the association may invite a community resource officer to attend a meeting and give information about how owners can help deter crime in the neighborhood.
In addition, if certain criminal behavior directly impacts the community, the association may need to address the issue through a newsletter or other communication with owners. In such a situation, an association may communicate all or some of the following:
- Basic information that acknowledges the criminal activity
- Steps taken by the association to reduce the chance of similar activities occurring within the community
- Actions owners can take to protect themselves and their property
- Contact information for local law enforcement for use if criminal behavior is observed
- Resources for owners to access additional information about the specific criminal activity that prompted the notice
Associations can quickly get themselves into a pickle with disclosures. Transparent documentation of general issues and decisions can ease disclosure burdens for communities, but any community association encountering uncertain disclosure requirements should consult with legal counsel for guidance on the specific situation.