There’s nothing that throws a wrench into your plans quite like prepping your home for sale, only to find out your homeowners association is in the middle of a lawsuit.
There are an estimated 345,000 to 347,000 community associations in the U.S. as of 2017, according to the Community Associations Institute. And 26.3 million households and roughly 69 million residents live under homeowners associations, according to CAI's 2016 numbers.
A lawsuit can stem from unpaid member dues, spats between board members or construction defects from either the original developer or a contractor who worked on the project. Not every lawsuit causes a major problem for home sales, but if the HOA board is unable to function peacefully and effectively or the structural integrity of the building is called into question, buyers and lenders may steer clear of the development.
Hopefully your HOA doesn’t find itself in the midst of a lawsuit just as you’re getting ready to sell your home or while you have it on the market, but it’s certainly possible. In the event that does happen, here’s how to proceed.
Disclose what you know. Disclosure laws vary by state when it comes to real estate transactions, but that doesn’t mean you should ever hide what you know – especially if it’s something that could turn off a potential buyer.
“The last thing you want to do is have them feel like they’ve been duped in a way,” says Nick Gross, a licensed real estate salesperson for full-service real estate firm Triplemint in New York City.
You certainly don’t have to shout “pending litigation” from the rooftops, and there’s no need for a real estate agent to include it in marketing materials. But when a buyer is interested, providing the information is important.
By providing information on a lawsuit first, you have the ability to frame it with proper context – for example, when a settlement in favor of the HOA board is likely to happen soon.
Talk to your HOA board. While you should always err on the side of transparency when you risk sending up a red flag for a potential buyer, you should also be in communication with your HOA. The board may be sharing information with other potential buyers on the situation, and it may be tasked with providing such details instead of you as the seller.
In Arizona, for example, the responsibility for disclosure of a lawsuit or potential lawsuit varies depending on the size of the association, says the Mark J. Bainbridge, an attorney specializing in real estate law and homeowners association litigation based in Phoenix.
“If the association is comprised of more than 50 units, then the association actually is the party required to do the disclosure,” he says. “But if it’s less than 50, then it’s typically the seller’s obligation.”
Accept that some buyers will be turned off. The litigation may be no fault of yours, but you should accept at the start that some buyers will have a blanket “no” policy when it comes to active litigation involving the association. “Some people hear lawsuit, and they just walk away,” Gross says.
Your pool of potential buyers shrinks when certain issues exist, due to restrictions with their lender, how quickly other houses are selling in the neighborhood and how competitively your home is priced. Just like some buyers don't want to renovate a kitchen, others don't want to deal with a condo association involved in a lawsuit.
Expect most major lenders to say no. A key factor contributing to many buyers’ attitudes toward litigation is the mortgage lender they’re planning to use. If you’re selling a condo, pending litigation means Fannie Mae and Freddie Mac won’t purchase the mortgage in the aftermarket, making the condo nonwarrantable – so most major banks won’t approve the loan.
“Certainly the big banks, like a Wells [Fargo], will just say nope – no chance,” Gross says. A lender may also turn down a loan for a single-family house due to pending litigation if the lawsuit threatens or calls the value of the property into question.
If the lawsuit is based on some form of construction defect, Bainbridge says, “It’s going to be very difficult for a lender to lend on that property in that scenario. But usually, the litigation isn’t typically that serious where it’s something fundamentally wrong with the building.”
Smaller banks, credit unions and some nonbank lenders may be more likely to consider the property based on the circumstances of the lawsuit, negotiated price, down payment and other conditions. Of course, it’s up to the buyer when it comes to deciding which lender to work with. An all-cash offer does help you avoid the lender hurdle, although the price may require a bit more negotiation in exchange for the smoother transaction.
Be willing to go lower on the price. Unfortunately, an active lawsuit involving your HOA may mean you have to price your property more competitively. With a lower asking price, you’re more likely to attract serious buyers who are willing to look past the litigation and consider the other positives.
Gross is in the process of purchasing an apartment in a cooperative in New York City in which the co-op board is currently undergoing litigation. After conducting research, he determined the lawsuit wasn’t a concern to him, and the “softer price” of the unit made it more enticing.
Consider waiting out litigation. If you're in a time crunch or in need of the profits from a sale, you may not be able to wait, but consider your options. Consider renting out the condo or house for a year or two so you can collect rent to cover the mortgage while litigation plays out.
Keep in mind that any lawsuits involving HOA, condo or co-op boards can be fairly simple. Bainbridge says the most common form of lawsuit he sees HOAs involved in is pursuing delinquent dues from members, followed by action against the developer for defective construction or, typically in an association of single-family homes, enforcing construction restrictions among members.
As Gross notes, litigation doesn’t go on forever, but it may take a couple of years. In the meantime, you may simply need to frame your property differently to attract a buyer that won't be spooked by litigation. In his experience, Gross says a property with an active lawsuit is worth a second look to buyers: "A lawsuit doesn't mean look away, a lawsuit means look further."
Ensure a quick sale.
Selling your home quickly not only allows you to move on with your life, it also means fewer days of keeping your home in pristine condition and leaving every time your agent brings prospective buyers for a tour. According to real estate information company Zillow, the best time to list a home for sale is on a Saturday between May 1 and 15; homes listed during those times sell six days faster and for 0.7% more than the average annual home price. But how fast your home actually sells, and at what price, depends on factors beyond timing. Here are 10 secrets to selling your home faster, no matter when you list it.
Updated on March 20, 2020: This story was published at an earlier date and has been updated with new information.Pick a selling strategy.
Pick a selling strategy.
Before putting a for sale sign in your yard, it's important to pick the selling strategy that will work best for you. The for-sale-by-owner option may be best if you feel confident in your ability to market the home and negotiate. If your time is better spent on other details, a real estate agent could be best. If you need to sell the home quickly, you may want to inquire with an iBuyer, an entity that can make the deal close faster than the typical homebuyer. You should feel confident in the selling strategy you choose, and avoid switching from one to the other while your house is on the market. Buyers could be turned off by the constant changing of circumstances.Invest in a professional photographer.
Invest in a professional photographer.
According to NAR's 2019 Profile of Home Buyers and Sellers, 44% of recent buyers started their search online. Of those, 87% found photos very useful in their home search. If your listing photos don’t show off the features of your home, prospective buyers may reject it without even taking a tour or going to the open house. Hiring a professional photographer and posting at least 30 photos of your home, inside and out, is a good way to attract buyers. Photography is often free for home sellers, as shoots are often conducted at the expense of real estate brokers as part of marketing the property.Clean everything.
(People Images/ Getty Images)
Nothing turns off buyers like a dirty house. Hire a company to deep clean if you can’t do it yourself. “When the (home) is on the market, no matter what time of day or night, it should be clean and neat,” says Ellen Cohen, a licensed associate real estate broker with real estate brokerage Compass in New York City.
Key places to clean while your home is on the market include:
- Kitchen countertops.
- Inside cabinets and appliances.
- Floors and room corners where dust collects.
- Bathroom counters, toilets, tubs and showers.
- Inside closets.
- Windows, inside and out.
- Scuffed walls, baseboards and doors.
- Basement and garage.
Depersonalize the home.
Remove all your family photos and memorabilia. You want buyers to see the house as a home for their family, not yours. Remove political and religious items, your children’s artwork (and everything else) from the refrigerator and anything that marks the house as your territory rather than neutral territory. The same goes for any collections such as figurines, sports memorabilia or kids' toys that can make a buyer think less about the house and more about you. Family photos can be replaced by neutral art or removed entirely – just be sure to remove any nails and repair nail holes where any hanging photos used to be.Let the light in.
Let the light in.
People love light and bright, and the best way to show off your house is to let the sunshine in. Open all the curtains, blinds and shades, and turn lights on in any dark rooms. If the natural light situation is lacking in any room, strategically place lamps or light sources throughout to set the mood. And while your house is on the market, open all curtains and turn on lights every time you leave your house for work or errands in case you get word that a buyer would like to tour the space before you get home.Be flexible with showings.
Be flexible with showings.
Buyers like to see homes on their schedule, which often means evenings and weekends. Plus, they want to be able to tour a home soon after they find it online, especially in a hot market where they're competing with other buyers. If your home can be shown with little or no notice, more prospective buyers will see it. If you require 24 hours’ notice, they may choose to skip your home altogether. "That's one less person who gets to see the property," Cohen says. Be ready to leave quickly as well – if you're still cleaning up or hanging around outside when the buyer arrives, it can make for an awkward interaction.Set the right price.
Set the right price.
No seller wants to leave money on the table, but the strategy of setting an unrealistically high price with the idea that you can come down later doesn’t work in real estate. Buyers and their agents have access to more information on comparable homes than ever, and they know what most homes are worth before viewing them. A home that’s overpriced in the beginning tends to stay on the market longer, even after the price is cut, because buyers think there must be something wrong with it. "Pricing correctly on the lower side tends to work much better," Cohen says.Remove excess furniture and clutter.
Remove excess furniture and clutter.
Nothing makes a home seem smaller than too much big furniture. Rent a self-storage container or a storage unit and remove as much furniture as you can. It will immediately make your home seem calmer and larger. Remove knickknacks from all surfaces, pack them away and store the pieces upon which you displayed them. Take a minimalist approach to books, throw rugs and draperies, and clear off your kitchen and bathroom countertops, even removing appliances you normally use. If you can scale down the contents of your closets, that’s even better, because it makes the home's storage space look more ample.Repaint in neutral colors.
Repaint in neutral colors.
A new coat of paint will do wonders to freshen up your home, both inside and out. This is the time to paint over your daughter’s purple bedroom, nix the quirky turquoise bathroom and cover up the red accent wall in your dining room. Busy wallpaper can also turn off potential buyers. Your goal is to create a neutral palette so buyers can envision incorporating their own personal touches in the home. "You just want people to see the space for what it is," Cohen says. Rather than a stark white, consider neutral shades of gray, taupe and cream on the walls.Spruce up the front of your home.
Spruce up the front of your home.
You’ve heard it 100 times before, and it’s still true: Curb appeal matters. You don’t get a second chance to make a first impression. A new or freshly painted front door, new house numbers and a new mailbox can breathe life into your entryway. Fresh landscaping and flowers in beds or in pots also enhance your home’s first impression. Trim trees and bushes, tidy up flower beds, remove dead leaves from plants, clear out cobwebs from nooks near the entrance and pressure-wash walkways, patios and decks. Leave the outdoor lights on, too, because prospective buyers may drive by at night.Here are 10 tips to sell your home faster:
Here are 10 tips to sell your home faster:
- Pick a selling strategy.
- Invest in a professional photographer.
- Clean everything.
- Depersonalize the home.
- Let the light in.
- Be flexible with showings.
- Set the right price.
- Remove excess furniture and clutter.
- Repaint in neutral colors.
- Spruce up the front of your home.
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She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at email@example.com.