February 12, 2010

Resale Certificates - Provide a Proper Preview

According to the Washington Condominium Act, a prospective purchaser of a condominium unit must receive a resale certificate from the owner of that unit before the sale closes. The condominium association is required to provide the owner with a signed resale certificate within 10 days of each request, and it is allowed to charge a fee of up to $150 for this service. An officer or agent of the association must sign that document based upon actual knowledge.

Resale certificates provide a prospective buyer with a snapshot of the association in general and the unit in particular. If delinquent assessments are owed by the current owner, this must be disclosed. If significant repair work that will cost more than 5% of the annual budget is anticipated, this must be disclosed. If any alteration or improvement of the unit or limited common area violates the declaration, this must be disclosed. A statement of the association’s reserves must be disclosed, along with financial statements, balance sheets, and operating budgets. A reserve study must be provided or a mandatory disclosure about the lack of a reserve study must be given. A copy of the declaration, bylaws, and rules must be provided as well.

One broad entitlement to information in resale certificates is “any other information reasonably requested by mortgagees of prospective purchasers of units.” The Act states that information typically requested by entities like the federal national mortgage association and the department of housing and urban development is discoverable in a resale certificate if it is reasonably available to the association. Fannie Mae and HUD have recently begun requesting more information about condominiums, including owner occupancy rates and delinquency rates, so this information may need to be provided.

Associations should take their legal obligations to prospective purchasers seriously and err on the side of disclosure when completing resale certificates. A useful rule of thumb is: "If I was considering buying this unit, would I want to know about this?" Boards do not want to get involved in lawsuits seeking damages caused by inadequate resale certificates.