And knowing is half the battle. – G.I. Joe
When owners in community associations sell their homes, associations and their management companies inevitably get involved in the transactions by providing governing documents for the buyers’ review and status letters showing assessments and other amounts due at the time of closing. These document disclosures typically fall within the sellers’ obligations under Section 7 of the Colorado Real Estate Commission-approved Contract to Buy and Sell Real Estate (Residential).
Effective January 1, 2019, the standard residential real estate contract form includes additional documents that sellers must disclose to buyers. This means that associations and their management companies will receive requests for different documents starting January 1st. The following table lists the documents required under the old contract and those that associations and management companies will need to gather and provide as of January 1, 2019, under the new contract:
|OLD CONTRACT||NEW CONTRACT|
|Articles of incorporation||Articles of incorporation|
|Articles of organization||Articles of organization|
|Operating agreements||Operating agreements|
|Rules and regulations||Rules and regulations|
|Party wall agreements||Party wall agreements|
|Responsible governance policies adopted under § 38-33.3-209.5, C.R.S.|
|Minutes of most recent annual owners’ meeting||Minutes of the annual owners’ or members’ meeting; such minutes include those provided under the most current annual disclosure required under § 38-33.3-209.4, C.R.S. and minutes of meetings, if any, subsequent to the minutes disclosed in the Annual Disclosure. If none of the preceding minutes exist, then the most recent minutes, if any.|
|Minutes of any directors’ or managers’ meetings during the six-month period immediately preceding the date of the Contract. If none of the preceding minutes exist, then the most recent minutes, if any.||Minutes of any executive boards’ or managers’ meetings; such minutes include those provided under the most current annual disclosure required under § 38-33.3-209.4, C.R.S. and minutes of meetings, if any, subsequent to the minutes disclosed in the Annual Disclosure. If none of the preceding minutes exist, then the most recent minutes, if any.|
|List of all Association insurance policies as provided in the Association’s last Annual Disclosure, including, but not limited to, property, general liability, association director and officer professional liability and fidelity policies. The list must include the company names, policy limits, policy deductibles, additional named insureds and expiration dates of the policies listed.|
|A list by unit type of the Association’s assessments, including both regular and special assessments as disclosed in the last Annual Disclosure.|
The most recent financial documents which consist of:
(1) annual and most recent balance sheet
(2) annual and most recent income and expenditures statement
(3) annual budget
(4) reserve study, and
(5) notice of unpaid assessments, if any.
The most recent financial documents which consist of:
(1) the Association’s operating budget for the current fiscal year
(2) the Association’s most recent annual financial statements, including any amounts held in reserve for the fiscal year immediately preceding the Association’s last Annual Disclosure
(3) the results of the Association’s most recent available financial audit or review
(4) list of the fees and charges (regardless of name of title of such fees or charges) that the Association’s community association manager or Association will charge in connection with the Closing including, but not limited to, any fee incident to the issuance of the Association’s statement of assessments (Status Letter), any rush or update fee charged for the Status Letter, any record change fee or ownership record transfer fees (Record Change Fee), fees to access documents
(5) list of all assessments required to be paid in advance, reserves or working capital due at Closing
(6) reserve study, if any.
|Any written notice from the Association to Seller of a “construction defect action” under § 38-33.3-303.5, C.R.S. within the past six months and the result of whether the Association approved or disapproved such action.|
These changes to the contract incorporate annual disclosure requirements that have applied to community associations since 2005 under Section 209.4 of the Colorado Common Interest Ownership Act (“CCIOA”). Even though associations must provide many of these documents at no cost to individual owners pursuant to CCIOA, associations can charge to fulfill title company requests for these documents.
The 2019 Contract to Buy and Sell Real Estate may affect the timing for status letter requests as well. A new provision in the contract requires the seller to request a status letter “at least fourteen days prior to the Closing Date.” Associations and management companies may need to adjust procedures to ensure that payoff amounts remain accurate for longer periods of time.
With these new requirements in mind, associations and their management companies can take the following steps to prepare for and comply with requests under the new standard real estate contract:
- Gather and maintain all documents required for disclosure under the standard contract form.
- Determine pricing, if any, for the bundle of documents required under the contract.
- Consider whether to offer the status letter as part of the document bundle or on its own for a separate fee.
- Update management contract terms to reflect any pricing for the new document package and/or status letter.
- Consult with legal counsel as needed.
Now you know!