CAD Contract Tip: Section 3(A)

I hope you are having a great start to the year. As you know, GAR made a change to the Community Association Disclosure (“CAD”) a year or so ago regarding the seller’s responsibility to pay for improperly disclosed HOA annual assessments. Because I continue to see Section A(3) of the CAD filled out improperly, I wanted to send this email to reiterate what the section says and highlight the impact to the seller for failure to fill out this section properly.

Section A(3) of the CAD requires the seller to state the total ANNUAL assessments paid to an association. That means what is says: The total ANNUAL amount, NOT the monthly amount of HOA assessments. While the form does say the word “annual”, I find the remainder of this section to be somewhat confusing as then it provides a check box area in which you are to show the frequency of payments. Many sellers are completing this form by stating the monthly amount of HOA assessments and then checking the monthly box. I know this is not intentional, but these are contract documents that set forth the parties’ agreement and obligations.

When a seller, for example, improperly puts $1,000.00 in that section (and that is the monthly amount of HOA dues), the seller is now responsible pursuant to CAD Section B(3)(c) to pay the monthly HOA assessments for the remainder of the year. If that happens in January, the seller would have to pay an additional $11,000.00 at closing. Specifically, that section states that the seller is responsible to pay for any amount in excess of the sum disclosed in Section A(3) for the “remainder of the Year in which the Property was contracted to be sold.” I know . . . that’s a lot of money.

While I firmly believe completing the CAD accurately and completely is the responsibility of the seller (and not his or her Realtor), I don’t think it’s a bad idea for the Realtor to double check this section at a minimum. A Realtor may only know what certain HOA fees are based on what his or her client tells them, but most agents will easily catch a mistake in Section A(3) knowing what the CAD really says. 

As always, if you need help with anything (even if it does not relate to a closing in my office) please call me on my cell anytime (even nights and weekends).