Monday, May 21, 2018
What are your Board's Rights and Obligations with regard to Sales and Financing in Your Community?
Just how much does your association need to facilitate sales and refinancing activity in your community?
The requests for information other than estoppel requests usually involve one or more of the following items:
1. Lender Questionnaires. These forms are typically overly broad and require the board or manager to confirm information that might not be accessible to them. For example, many communities are not certain of the exact number of units currently being leased because some owners hide leasing activity from the board. These forms require the board to function as a quasi loan risk officer to help the lender determine whether or not a loan in a particular community is a good risk. There is little upside to the board or its manager in attesting 100% to answers for which there is not 100% certainty. Any questionnaire which does not frame the information being provided as being done so "to the best of the signer's knowledge" is a big no-no. If your board is inclined to fill out a lender questionnaire, work with association counsel to modify the language as needed to best protect the association's interests.
2. Litigation Information. Far too many associations are sued in routine "slip and fall" and water leak cases. Those cases are then usually turned over to insurance defense counsel to handle. Closing agents may want certain assurances from the board or the association's general counsel that the amount of potential loss or damage is known and can be covered by the association without the need for a special assessment or a loan from the reserves. Also, they will want to confirm that the litigation has no impact on the safety, structural soundness, habitability or functional use of the building and that the amount of the litigation is covered by the association's insurance policy. Unfortunately, it is often not possible to fully assuage those concerns particularly if settlement negotiations are ongoing with no immediate end in sight. If you are confronted with this issue in your community, see if defense counsel can prepare a brief statement about insurance coverage for the claim(s) in question. While this option is rarely if ever used, counsel for the purchaser or the seller is also able to pull and read the court pleadings and draw their own conclusions about the potential impact in order to facilitate the closing.
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