20 Feb

Sellers of condominiums and townhomes are required byMinnesotalaw to provide to buyers a resale disclosure certificate.  However, many lenders who are selling property they acquired from foreclosure believe they are exempt from obligations that exist under state statutes.  In many cases, these lenders are from out-of-state and do not believe specific state disclosure requirements apply to them.  This has become even more pronounced with the recent explosion of properties owned by lenders and HUD.  Despite the arguments by the lender, the obligations under the condominium act apply equally to them.  Lenders and HUD are not exempt from providing purchasers of homes in common interest communities the resale disclosure certificate. 

 In situations of a resale of a home in a CIC (common interest community) which would include most condominiums and townhomes, the owner is required to make a request on the community association or its property management company for the resale disclosure certificate, and the owner is required to provide the resale disclosure certificate to the buyer prior to closing.  The contents of the resale disclosure certificate are found in the Minnesota Common Interest Ownership Act (MCIOA).  The association may charge a “reasonable fee” for preparing the certificate and providing any association documents related to that disclosure.  Those association documents include the Declaration, the Articles of Incorporation, the By-Laws, the Rules and Regulations (if any), any Amendments to those documents, and certain financial documents of the association. 

 There is not an exemption under the statute for a lender or HUD to this requirement.  A frequent argument by lender is they are selling the property “as is”, and, therefore, are not making a disclosure.  However, an “as is” sale is not exempt to the obligation to provide a resale disclosure certificate.   

The lender’s refusal to provide the certificate becomes a problem for the listing agent.  If the owner/lender is refusing to provide or pay for the preparation of a resale disclosure certificate, the listing agent needs to make sure that all potential buyers and their agents are aware of the fact that a certificate will not be forthcoming.  Buyer’s agents involved in these transactions, if not having received a resale disclosure certificate, should immediately inquire of the listing agent.  To the extent that the certificate is not provided, the buyer’s agent needs to make clear to the buyer that they will not be receiving a certificate. 

Potential buyers may not know what a resale disclosure certificate is and all the information that is contained in that form.  It is critical that the agent inform the buyer of what is in the form and what information they will not be getting.  If the buyer still wishes to proceed forward, they must understand they are doing so without critical information which would assist them in making decisions to purchase the property.  This information may include information about assessments owed on the property, litigation that the association may be a party to, defects that may exist with the property, and rental or pet restrictions.  These are important facts that the buyer should know prior to making decisions to purchase.

The statute does provide that the purchaser may rescind the transaction to the extent that they do not receive the resale disclosure certificate and the association documents before closing.  However, once the transaction closes, the purchaser will not be able to seek rescission because of the absence of the certificate.  However, to the extent that the buyer was unaware of the existence of the certificate, they are not without remedy.  They can pursue the real estate agents and the seller for not providing the certificate to the extent that the information, if included in the certificate, would have advised the buyer of potential issues with the association which are leading to monetary damages to this new buyer.  In other words, if the buyer closes and discovers that there is a large assessment or that he cannot use the unit in the manner in which he intended, he may have suffered damage for which he can seek recovery.  To the extent that the certificate was not provided by the seller and neither the listing agent nor buyer’s agent advised the buyer of the absence of this form, that buyer may have a cause of action against the real estate agents for negligence and potentially against the seller for violation of the statute and non-disclosure of material fact.

 Therefore, it is critical for real estate agents, whether they are the listing agent or the buyer’s agent, to emphasize the need for the resale disclosure certificate even with a reluctant seller.  These documents are important to the buyer but they also provide a certain level of protection to the real estate agents because they are an additional disclosure of material facts which could affect the buyer’s use or enjoyment of the property.

David McGee’s practice is based in the litigation section at Thomsen & Nybeck, P.A.  Dave brings his 20 plus years of experience representing Community Associations in construction defects and insurance disputes.  Dave has recovered millions for Associations in disputes with developers, contractors and insurance companies, and heads up the firm’s “Property Insurance Claims” Group.  Dave has been named a “Top Lawyer” by Minnesota Law & Politics and Minneapolis/St. Paul Magazine for a number of years.  Dave has represented clients in numerous appellate cases including Chapman Place Ass’n, Inc. v. Prokasky, 507 N.W.2d 858 (Minn. Ct. App. 1993); Ly v. Nystrom, 615 N.W.2d 302 (Minn. 2000); and Peggy Rose Revocable Trust v. Eppich, 640 N.W.2d 601 (Minn. 2002).  Dave represents clients in arbitrations, mediations, court actions, trials, and appellate work.  Dave is a frequent lecturer and has written numerous articles in the area of Insurance, Construction, and Real Estate Law.  He is also a qualified neutral under Rule 114 of the Minnesota General Rules of Practice (mediation and arbitration).


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