Buying and selling property in the current real estate market is competitive, and California remains at the forefront of popularity for real estate. Both the buyer and the seller typically seek to move quickly to complete the process as soon as possible.
However, the process of transferring a home within an HOA requires additional steps for both the seller and buyer to ensure the new resident properly complies with their regulations. If an HOA special assessment has been issued but not paid off prior to the sale of a home in California, this can complicate the process of closing.
Here are some important details to keep in mind when buying or selling a home with a special assessment, including who pays for California HOA special assessments at closing and whether this responsibility can be assumed by another party.
What Is a Special Assessment?
Homeowners associations require members to pay dues (called assessments) as part of their contract for owning a home within the community. These dues pay for public amenities, such as sidewalks, grounds maintenance, community resources and more.
However, if an emergency occurs that strains the HOA’s budget beyond its normal means, it may attempt to recover additional money to cover the cost by levying a special assessment. This right, granted to the governing body of an HOA, can come as a surprise to homeowners who are now responsible for a bill that was not included among their regularly recurring commitments.
If a homeowner sells their property after a special assessment has been levied, the assessment remains; it does not disappear simply because the original homeowner responsible for it is leaving the HOA. Who pays the HOA special assessment depends on the circumstances and what is written in the contract of the HOA.
Who Pays for California HOA Special Assessments at Closing?
In California, a special assessment is attached to the person who owns the home, not the home itself. This means that the seller is typically responsible for paying an HOA special assessment when the home is sold.
However, the process for paying may change compared to previous obligations. Because special assessments can amount to a greater cost than other dues associated with an HOA contract, the governing body generally allows for these obligations to be repaid according to a payment plan.
When a home is sold with an outstanding special assessment, the assessment becomes due immediately and in full. The homeowner can no longer take advantage of a payment plan that extends beyond the date at which the home transfers ownership.
This obligation is separate from any closing documentation, because the special assessment is the financial responsibility of the owner-seller and is not tied to the property.
Can Special Assessments Be Assumed?
In certain circumstances, the responsibility of paying the special assessment can be transferred to the buyer. A buyer may assume the special assessment by signing a legally binding agreement with the seller if such agreement is not prohibited by the contract issued by the HOA.
Many HOAs will outright prohibit buyers from assuming special assessments. For this reason, it is important to review the terms of the HOA contract to understand who is eligible for responsibility. If applicable, the buyer and seller can come to a mutual agreement about who assumes the special assessment fee.
The buyer and seller may come to an agreement for the buyer to pay the assessment in cash. Alternatively, the seller may alter the price of the home in accordance with the buyer’s plan to pay the assessment, preventing money from directly changing hands. Failure to pay the special assessment can result in a lien that forces the sale of the property to a different buyer and against the seller’s wishes.
In some instances, special assessments that remain outstanding while the HOA governing body has not yet completed repairs can be split between the buyer and seller. Because some types of assessments are tax deductible, a buyer may choose to accept the responsibility of the full special assessment debt in order to claim it on taxes.
Get Help with Special Assessments from Legal Professionals
Special assessments are a nuanced topic that can dramatically impact how a home is purchased and sold. Additionally, HOAs are not always accurate or honest in how they levy special assessments. To navigate the delicate legalities of special assessments as a home buyer or seller, be sure to consult with professionals.
The legal team at Lehr Law helps clients to navigate HOA special assessments and complexities associated with this element of HOA living. Contact Lehr Law to schedule a consultation to get started.