What You Need to Know About Resale Certificates and Packages
We all know that there’s a lot of paperwork in the home buying process. If the home you want to buy is in a managed community of any kind, a resale package, including your resale certificate and governing documents, is part of that paperwork. Resale certificates and packages offer transparency about the community and whether or not the sellers are current in their financial obligations to the association. The package includes paperwork that protects the buyer and the seller, as well as minimizes financial risk for the association. It’s important to know what goes into a resale package, why you need it and how to get it before you buy or sell your home in a managed community.
A standard resale package has two parts:
1. What is a resale certificate?
The first part is the actual resale certificate, which may also be called a closing statement, estoppel, dues statement, paid assessment letter, 3407 or 5407. In Georgia, these statements are known as closing letters. Florida calls them estoppels. In Ontario, they are status certificates. For simplicity, this article will use the term “resale certificate,” but it’s important to make sure you know the language used in your area. The association’s property management company, realtor and title company will be well-versed in the terminology you need to know.
The resale certificate provides specific information about the home you are buying and its standing in the community association. It includes any past due payments to the association, pending violations, unpaid violations, unpaid special assessments and fees that are due upon closing. It also includes information about the association as a whole: pending litigation, amounts in the reserve fund and planned capital expenditures for the upcoming year. Some states also include the type of voting that the association uses and other state-specific information. In Florida, the amount that is paid for the certificate must be included on it.
2. What are governing documents?
The second part is the association’s governing documents: The master deed, bylaws, articles of incorporation and rules and regulations. If one is available, a plat map of the community may be included. Some states also require board meeting minutes and a copy of the reserve study. A very small number of associations don’t distribute copies of their financials. They require buyers to come in person and review the financials in the office. Each state will have specifics about what the package must include. Although they include most of the same basic information, there are variations. Virginia, for example, requires that the package include information about any restrictions on displaying the American flag and on solar panels. If you have any questions, look to your state’s condominium laws for clarification, or contact an attorney.
State laws will also dictate how long a community has to complete the information required. Although the laws vary, five to 15 business days is a likely range of time. A new Florida law reduces the time from 15 days to 10 business days. Sometimes rushes are possible, but not if the state requires a physical inspection of the home being purchased. Certificates needed in a hurry often come with additional fees, so patience can be a virtue in this process.
Where do I get a resale certificate or package?After the contract on a home is signed, most states require that the seller provides the resale package to the buyer. There are variations: In Ontario, Florida, New York and New Jersey, the buyer or the buyer’s agent typically requests the package. Your local realtor or broker and the property management company at the community you want to move into will know the local laws and specifics. If a seller wants to, they can certainly provide some information like a copy of the governing documents to any potential buyer along the way. In California, it is legally the seller’s responsibility to provide all of the association’s governing documentation and restrictions to the buyer, and the property management company often assists the seller in meeting that obligation, according to Dawne Driver, director of client accounts receivable at FirstService Residential.
Knowledgeable realtors and brokers will also have information like the monthly assessment fees and provide them to buyers because it’s often critical to making a purchase decision. But a realtor won’t know if the current homeowner is up-to-date on their dues, for example, which is why the seller is legally required to disclose that to a buyer within the resale package.
Getting a resale package isn’t difficult. In self-managed communities, the seller can request it from the management office. Sometimes that request has to be made in person. In a community managed by a professional management company, it can also be requested from the management office, but you may also be able to order it online. In communities managed by FirstService Residential, all the buyer or seller needs to do is go online with the buyer’s name, seller’s name, purchase price, anticipated closing date and unit address.
The fees for resale packages vary from state to state and sometimes by community. Some states limit the amount associations can recoup for the time and cost of producing the packages; other states just say “a reasonable amount.” Florida and Arizona cap fees for resale packages. Driver said that a title company or escrow company representing the seller usually orders the statement of account in California, and all fees are paid at closing.
It’s important for buyers to understand, although there’s a cost, it’s an investment in peace of mind and transparency and it reduces your liability if the seller hasn’t made all association payments and isn’t up front about it. For example, in New Jersey, Georgia and Florida, debt stays with the property. So if the seller hasn’t paid dues in a year, the debt becomes the new buyer’s responsibility. Knowing that the debt exists allows it to become a negotiation point during the closing settlement.
Because the association’s property management company handles the accounts receivable for the association and has the rest of its accounting information handy as well, the management company will complete the certificate as a service to its clients.
Who completes the information for the resale certificate?
In self-managed companies, a board member, clerical staffer or community manager may complete the resale certificate. The drawback to this is that that the liability for mistakes or inaccuracies in the information is on the person providing the documents.
In Florida, FirstService Residential provides hundreds of resale certificates each week. “Our estoppel certificate system is automated. It’s populated by information that is already in our system,” said Thomas Shortt, a business analyst manager in the transactional services department. “That automation, and our checks and balances, produce the most accurate estoppels possible with a reduced risk of error.”
Resale certificates and packages might sound complicated, but they don’t have to be. And they are an important tool in closing negotiations and for the peace of mind of everyone involved in the transaction: The seller’s obligations are taken care of, the buyer knows all about the community they are joining and the association board knows there are no account delinquencies. Having an accurate resale package is vital to a smooth real estate transaction.
For more information about how working with a professional property management company can make dealing with resale packages and other financial items easier on your board, contact FirstService Residential, North America’s leading community association management company.