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.