May 19, 2021

The New 2021 Real Estate HOA Addendum

If you are selling a property that is part of a Homeowner’s Association, get ready for a potential surprise. I’m finding some upset sellers dealing with the recent change to paragraph C in the HOA addendum.

Last month (April 2021), the Texas Real Estate Commission made a slight change to the form titled Addendum For Property Subject to Mandatory Membership In A Property Owners Association — a big name for a small document that can have a big impact on your closing costs. This addendum is considered part of the contract when the property is part of a mandatory HOA.

The previous HOA addendum addressed the limit that the buyer would pay for “association fees or other charges association with the transfer.” Buyer and seller would agree on an amount and fill it in on the addendum. Typically, the amount filled in on this addendum was between $100 and $300 for the buyer’s limit. The seller would pay any association transfer fees that exceeded the buyer’s responsibility filled in on the addendum.

The previous HOA addendum also had a paragraph D that stated the “buyer shall pay any deposits for reserves required by the Association.” That changed in April.

The new HOA addendum states the limit that the buyer will pay for “association fees, deposits, reserves and other charges associated with the transfer.” I am still seeing the amount filled in between $100 and $300.

What many sellers and agents do not notice (until it is too late) is that paragraph D no longer requires the buyer to pay for the reserves. That part of the addendum was deleted. The deposits and reserves paid by the buyer are now lumped together with the transfer fee and are limited to the amount filled in the addendum. The seller must pay any amount over that limit. These charges are in addition to the usual seller expense for the resale certificate and HOA documents that must be provided to the buyer.

That is not a problem unless your HOA has a fee for reserves. HOA reserves are sometimes referred to as capital reserves, capital contribution, mandatory reserves, reserve deposit, etc. Some folks call it a ‘buy in.’ It is the HOA fee charged to new buyers in a development to build up their funds.

The reserve fee can be hefty. I’ve seen it range from $1,000 to $10,000. Some sellers are getting an ugly surprise when they realize the capital reserve fee is now mostly their responsibility.

Imagine you are a seller who purchased a property a few years ago and paid the HOA capital contribution when you bought your home. Now you may be paying it again for your buyer because the amount listed for the buyer’s limit is only $150 and barely covers the transfer fee.

Do not count on your HOA or HOA management company to guide you on this new addendum. Most HOA management companies are unaware of this change.

Many HOA documents state that the capital reserve fee is a buyer responsibility. However, if the addendum signed by the seller states that the buyer is only paying up to a small limit for fees, then the seller must adhere to the contract that they signed and pay the balance.

[where: 75230]

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