Deed restriction paper trail required

Question: A potential buyer for my condo said he would consider purchasing only if I gave him copies of my association’s covenants, conditions and restrictions (CC&Rs;) and bylaws to review. Since our original CC&Rs; were recorded in 1970, I gave him the most recent copies of both documents. He insisted that he see the original CC&Rs; and bylaws and a “verifiable audit trail of all amendments, restatements and rewrites of all governing documents supported by board meeting minutes and titleholder signatures.” He’s had problems in the past with governing document changes and doesn’t want to go through that again. He wants to “see every clause that has been amended or rewritten” before he decides if he wants to live here. How can I tell if the CC&Rs; or bylaws are validly amended?

Answer: Many consumers discover problems related to their deed-restricted purchase only after escrow has closed. The processes and votes by which valid amendments occur are documented in the association’s board meeting minutes and in the minutes of the meeting where the amendments were either approved or rejected.

The original CC&Rs; filed by the developer required Department of Real Estate approval. Documents amended after a project is turned over to an association do not necessarily require DRE approval, but any changes to the CC&Rs; must be recorded in the county where the property is located. Changes to bylaws or rules and regulations do not have to be recorded but can be corroborated by meticulously auditing meeting minutes.

All homeowner associations should maintain records regarding changes to their governing documents and proof that such changes were created legitimately. All such documents, including changes, should be readily available to buyers and owners alike.

Civil Code Section 1368 requires the seller to provide the buyer with various documents, including governing ones. Buyers are only entitled to these documents as a prospective purchaser. However, the law does not mandate that an escrow be opened in order to be deemed a prospective purchaser.

Beginning with the developer’s original CC&Rs;, carefully scrutinize the minutes looking for substantiation of all changes in these documents. Because minutes are prima facie evidence of the association’s business, a buyer can request copies of minutes for any document changes, amendments, rewrites and restatements.

There are tales of associations that have, for reasons known only to them, amended or recorded documents without the full participation, knowledge or consent of every titleholder. Depending on the gravity of document amendments or recordation, owners have complained of complications during transactions including but not limited to refinance, sale or accomplishing simple title clarifications.

Any potential buyer of residential deed-restricted property in a common-interest development needs more than the few weeks during escrow to evaluate documents, confirm the association’s financial health, assess the overall stability of the project and determine the viability of their purchase. Rarely can this be accomplished in a meaningful way during a 30-day escrow.

Smart buyers make delivery of all requested documents and their acceptance a “condition” precedent to closing escrow.

Buyers should independently procure recorded documents from the county recorder’s office and compare them to documents produced by the association. If they differ by even one word, there is a problem.

Buyers should obtain every document that has ever been recorded on the title beginning with the first sale. Also, compare document recordings with those of another random address from the same development.

In part, the Davis-Stirling Act provides that if the purchaser is damaged by the failure to provide documents, the buyer, not the seller, can sue for actual damages, obtain civil penalties up to $500 and be awarded attorney fees, evidencing a bias in the law against homeowners. In short, that means the seller is not protected.

Prospective titleholder interests differ substantially from the interests of an association and its board members. It is wise to seek advice from an independent attorney experienced in deed-restricted real estate and contracts but who does not represent associations, boards of directors or management companies.

Questions can be sent to P.O. Box 11843, Marina del Rey, CA 90295 or e-mailed to noexit@mindspring.com.