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."
Time your listing for a fast 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. Real estate information company Zillow crunched data from 2008 to 2016 and found the optimum time to list a home for sale was on a Saturday between May 1 and 15 – at least looking at national numbers. Homes listed during those times sold nine days faster and for 0.8 percent more than the average annual home price, according to Zillow’s analysis. In more moderate climates, the optimum time came in March or April.Timing isn't everything when selling your home.
Timing isn't everything when selling your home.
As you list your home, remember those numbers are historical averages and this spring may be different. "With 3 percent fewer homes on the market than last year, 2017 is shaping up to be another competitive buying season," Zillow chief economist Svenja Gudell said in a news release. "Many homebuyers who started looking for homes in the early spring will still be searching for their dream home months later." But how fast your home actually sells, and at what price, depends on a lot more factors than when you list it. A National Association of Realtors survey published late last year found that the average home was on the market a month in 2016, down from 11 weeks in 2012.
Here are 10 secrets to selling your home faster, no matter when you list it.Take great photos.
Take great photos.
According to an NAR survey, 51 percent of homebuyers found the house they eventually bought online and 95 percent used the internet 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 a buyer.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. That includes washing windows inside and out, removing any clutter and cleaning the garage, basement, baseboards, ceilings and closets – and anywhere else the buyer can see.Depersonalize the home.
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.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 your house is on a lockbox and your real estate agent isn’t going to be there to open blinds and turn on lights before showings, leave everything open when you leave for work every morning.Make your home available.
Make your home available.
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 are likely to see and perhaps choose others homes first.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 you can come down later doesn’t work in real estate. Buyers and their agents have access to more information than ever, and they know what most homes are worth before viewing them. A home that’s overpriced tends to stay on the market longer, even after the price is cut, because buyers think there must be something wrong with it. Set the right price from the beginning, otherwise you might cost yourself precious time and money.Remove excess furniture and clutter.
Remove excess furniture and clutter.
Nothing makes a home seem smaller than too much big furniture. Rent a PODS 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, CDs, throw rugs and draperies, and clear off your kitchen and bathroom countertops, even appliances you normally use. If you can remove half the stuff in your closets, that’s even better, because it makes the home’s storage space look more ample.Spread the word.
Spread the word.
Your neighbors are often the best salespeople for your home because they love the neighborhood. Make sure they know your home is for sale and are invited to your open house. Share your listing on social media and ensure your agent does the same. Put flyers on neighborhood bulletin boards and share the news on neighborhood email lists and Facebook groups. If you have the skills, make a video to tell the story of how much you love the house and the neighborhood and put it up on YouTube.Repaint in neutral colors.
Repaint in neutral colors.
A 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 and cover up your red dining room accent wall. You want to create a neutral palette where buyers can envision putting their own personal touches. Warm neutrals such as gray, taupe and cream are better than bright white.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, and pressure wash walkways, patios and decks. Leave the outdoor lights on, too, because prospective buyers may drive by at night.Read More
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 firstname.lastname@example.org.
Devon Thorsby | June 5, 2019
Homeowners should not fret, as long as they're prepared for the possibility of a downturn.