The Escrow Process: Where are the #@%$ HOA Documents?!

This week's blog was completed with the generous assistance of Julie Ekstrom with CV Escrow in Palm Springs.

With any residential property purchase in California we use escrow as an independent third party to make sure the transaction proceeds according to what was agreed upon by all parties in the purchase contract.  Condos are no different in this regard.  However, condo sales do have a few additional issues that effect the escrow process.  Probably the most important and potentially most impactful issue has to do with the Homeowner's Association (HOA) documents.  Anyone that buys a condominium will need to receive all available information related to the operation and financial standing of the HOA.  After all, if the HOA is involved in a major lawsuit it would be nice to know about that before you purchase a condo there, right?  So the escrow process coordinates getting the buyer all pertinent information from the HOA board or its management company.

Per the standard template of the purchase contract from the California Association of Realtors (CAR) during the first 17 days of the escrow process the buyer has the opportunity to approve or disapprove virtually any aspect of the property with no risk of losing their earnest money deposit, including issues related to the operation of the HOA.  Specifically, the buyer has five days from receipt of the HOA documents to approve or disapprove of them.  HOWEVER, the five day HOA approval timeline trumps the 17 day investigation window, meaning that the five days do not start until the documents have been received by the buyer, regardless of when that happens.  So, if the documents are received by day 12 of the escrow process there's not a problem because the buyer can then have five days for review before they need to decide if they want to move forward with the purchase of the condo.  But if the documents don't arrive until day 13, or 18, or 62, they still have five days for review, putting them past the 17 day window agreed upon in the purchase contract.  Obviously it is vitally important to get the documents to the buyer as soon as possible so escrow can stay on the timeline the purchase contract outlined.

It is not uncommon that the HOA documents do not get completed within the 17 days.  There are a number of steps that have to happen before the buyer will get the documents, specifically:

• The buyer's earnest money deposit check must be received by the escrow company.
• The buyer's check must clear the bank.
• Some management companies may require the seller's written approval to release information.
• Escrow needs authorization to release the funds deposited into escrow.
• Funds have to be paid up-front prior to the management company releasing the documents.
• If the management company is not local the funds must be sent overnight.
• Management companies usually have a 5-10 day turn around time.

So it is imperative that all involved parties (escrow personnel, real estate agents, sellers, buyers) work together to get the documents to the buyer in a timely manner.  This can be accomplished if the following steps are kept in mind:

• Buyer's deposit check should be deposited as soon as possible after the contract has been approved by all parties.  Since the funds must clear the bank before the documents can be ordered a cashier's check would be days faster than a personal check from the buyer.
• Seller or their real estate agent help escrow by providing complete and accurate HOA and management company information.
• Even though seller may believe they have a complete set of HOA documents which they can give to the buyer the purchase contract provides that the seller will order a new document package from the association to be sure that it is complete.
• All parties should be mindful of the time periods expressed in the purchase contract for seller's delivery of the documents to the buyer and for buyer's approval of the package after receipt.  17 days is the standard number of days, but the two parties can negotiate whatever number of days they want.  With foreclosures it is typically even shorter.
• All parties should respond to escrow requests in a timely manner.

The escrow process doesn't need to be a stress filled event.  Hopefully, by following the steps in this blog you can eliminate or reduce some of the anxiety related to timeliness.

If you have any questions or concerns about the information contained here please contact me directly.

Alan Wilke
Condos@PalmSpringsCondoLiving.Com
760-464-6693