Transfer Disclosures & Escrow Documents

Seller’s Duty to Disclose Information
Civil Code Section 4525 requires an owner of a property within an association to provide various items of information and documents to a prospective purchaser of the owner’s property “as soon as practicable before the transfer of title or the execution of a real property sales contract.” (Civ. Code § 4525(a).) Because the association is not a party to the transaction between the owner and the prospective purchaser, the association has no general duty to disclose information to the prospective purchaser:

“The Association cannot be expected to make disclosures so as to impart information in relation to every possible sale of a unit within the development. Were there such a requirement, the Association’s time could be consumed with the preparation of disclosure statements. Any such rule would also render redundant the procedure of annual reports, meetings, and the disclosures of budgets established by statute.” (Ostayan v. Nordoff Townhomes HOA (2003) 110 Cal.App.4th 120, 130).

However, in order for the owner/seller to provide the prospective purchaser with the required documents, the association is obligated to furnish those documents to the seller upon the seller’s written request for the same (discussed further, below).

Additional Duty to Disclose Defect-Related Information – In addition to the documents and information which must be provided under Section 4525, Civil Code Section 4535 places additional duties upon an owner/seller to disclose defect-related information to a prospective purchaser required under Civil Code Section 1134. Before the transfer of title, the seller must deliver to the prospective purchaser a written statement listing all substantial defects or malfunctions in the major systems in the unit and common areas, or a written statement disclaiming knowledge of any such substantial defects or malfunctions. (Civ. Code § 1134(a).) “Major systems” includes, but is not limited to, the roof, walls, floors, heating, air conditioning, plumbing, electrical systems or components of a similar or comparable nature, and recreational facilities. (Civ. Code § 1134(c).) Failure to make such disclosures prior to the execution of the purchase agreement gives the purchaser the right to terminate the agreement within specified timelines. (Civ. Code § 1134(b).)

Association’s Obligations to Provide Requested Documents
Upon written request from an owner, an association is required to, within ten (10) days of the mailing or delivery of the request, provide the owner (or the owner’s authorized recipient) a copy of all the requested documents specified under Civil Code Section 4525. (Civ. Code § 4530(a)(1).) Those documents include copies of the association’s governing documents, financial statement review, annual budget report, statements regarding rental restrictions, etc. (See Civ. Code § 4525 and 4528.)

The required documents may be maintained in electronic form, and may be posted on the association’s web site. (Civ. Code § 4530(a)(2).) An association is not permitted to withhold delivery of the documents for any reason nor subject to any condition except for the owner’s payment of the fees authorized by Civil Code Section 4530(b) (discussed below). An association may contract with any person or entity to facilitate the production and distribution of the requested documents (i.e., its management company). (Civ. Code § 4530(c); See also Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544.)

Statutory Form: Civil Code § 4528 – The documents required under Civil Code Section 4525 are itemized in the form required under Civil Code Section 4528 (“4528 Form”). The 4528 Form is then completed by the association in order to show what documents are being provided as well as the association’s fees to be charged in providing those documents.

Fees Charged by the Association

  • Allowable Fees – An association is permitted to collect a reasonable fee based upon the association’s actual costs for procuring, preparing, reproducing and delivering the requested documents, but is not permitted to charge additional fees for delivering the documents electronically. (Civ. Code § 4530(b)(1).) The association’s costs may include fees charged by the association’s managing agent for the production of the documents. (Berryman v. Merit Property Management, Inc. (2007) 152 Cal.App.4th 1544.)
  • Seller’s Obligation to Pay – The seller is required to compensate the association for providing the requested documents to the prospective purchaser. (Civ. Code § 5300(b)(8).)
  • Estimate Required – A written or electronic estimate of the fees that will be charged by the association must be set forth on the 4528 Form. (Civ. Code § 4530(b)(2).)
  • Fees for Cancelled Request – If the request for documents is cancelled in writing by the same party that placed the order, the association may only charge a cancellation fee if the association had already began working on the request and has not been compensated for the work it already performed. (Civ. Code § 4530(b)(3)(A).) The association is required to refund all previously collected fees reflecting work which has not yet been performed. (Civ. Code § 4530(b)(3)(B)-(C).)
  • Separate from Other Fees, Fines & Assessments – Any fees charged by the association for documents must be distinguished from other fees, fines or assessments billed as part of the property transfer or sales transaction. (Civ. Code § 4530(b)(4).)
  • Documents in Seller’s Possession – If the seller is already in possession of current copies of any of the requested documents, the seller must provide them to the prospective purchaser at no cost. (Civ. Code § 4530(b)(6).)

Violations of Disclosure Requirements
Any person who willfully violates the above requirements is liable to the purchaser of the property for actual damages and is further required to pay a civil penalty in an amount not to exceed five hundred dollars ($500). (Civ. Code § 4540.) In an action to enforce this liability, the prevailing party is entitled to an award of his/her reasonable attorney’s fees. (Civ. Code § 4540.)