Buying or selling a house in an HOA community can be more complex than simply signing a purchase agreement. In some neighborhoods, your association can review a prospective buyer’s details, but can HOA deny a buyer outright?
What is HOA Buyer Approval?
HOA buyer approval is a process that allows the association to review a prospective buyer. This usually happens before the deal closes and the property’s ownership transfers.
Depending on your HOA community, the buyer may need to submit an application before purchasing a property. They must also complete other authorized steps outlined in the HOA governing documents.
Can an HOA Deny a Buyer?
An HOA doesn’t necessarily have automatic, absolute authority to approve or reject any property buyers. Instead, its authority usually comes from the HOA’s governing documents. State law may also have some restrictions on how it can use that authority.
Here are some common scenarios when the HOA may reject a prospective property buyer:
Governing Documents Granting Approval Authority
The first question is whether the governing documents expressly give the HOA power to approve buyers. If they don’t have provisions on the matter, the board generally shouldn’t create a new approval authority through an informal policy.
However, if the governing documents grant your association clear screening authority, the HOA board may have the power to reject an applicant. This may happen, as long as the HOA has a valid reason consistent with an established community requirement.
Of course, even with authority, your board can’t simply decide to reject a buyer just because they dislike them. A denial must always be based on a written standard that’s enforced consistently.
Even with approval authority, directors need to ensure it remains within their jurisdiction. For example, a provision requiring a buyer’s contact information doesn’t mean the board has the authority to conduct a full financial investigation.
Buyer Fails to Complete the Required Process
Your HOA may have grounds to deny a buyer if they fail to submit a complete application or refuse to follow the established process. This may also apply if they refuse to pay an authorized fee.
For this, the HOA board should provide a clear process and instructions to avoid misunderstandings. It should also provide potential buyers with a reasonable opportunity to correct any incomplete or incorrect parts of their submission. Denials based on minor omissions may be difficult to defend if your HOA never even notified the buyer.
Planned Property Use Violates the Covenants
There are situations in which a prospective buyer plans to use the home or property in a way that would directly conflict with an enforceable restriction. For example, the transaction may violate a valid age-occupancy rule or the property may be intended for short-term rental activity, which can violate a leasing restriction.
If you encounter such cases, the board will need to focus on the proposed use instead of making assumptions about the buyer. It should also confirm whether the restriction in question is enforceable before relying on it to deny.
Association Has a Right of First Refusal
In some community associations, most commonly among condominiums, the HOA or COA has the right of first refusal. This provision usually allows the association to buy the property under the same terms offered by an outside buyer.
However, the board needs to understand that this right is not equal to an absolute authority to reject a buyer. To apply the right, the HOA must usually follow a procedure outlined in the governing documents and prepare to complete the transaction.
When Can an HOA Not Reject a Buyer?
Your HOA can’t reject a buyer for a reason outside its authority. If they do, the board may expose the association to legal disputes if it relies on unwritten requirements or if it applies different standards to similar applicants.
Some legislation also outlines when an HOA can’t reject a buyer. For one, the Fair Housing Act prohibits any discrimination based on federally protected characteristics. To back this up, state and local laws may offer broader protections. As such, the HOA can’t use buyer approval as a tool for illegal exclusion.
In such cases, discrimination doesn’t need to appear in an obviously biased rejection letter. Neutral-sounding policies still can cause legal issues if they’re enforced selectively.
Can HOA Deny a Sale of Your Home?
In most cases, your association can’t simply stop a homeowner from selling their property just because they oppose the transaction. However, as previously mentioned, having a valid approval clause or the right of first refusal may affect the transaction.
Other mechanisms may also affect the transaction before it closes, even without the HOA rejecting the buyer. Usually, these come in the form of an HOA lien, usually stemming from unpaid assessments. Missing records may also delay the buyer’s review.
What Should Buyers and Sellers Do After a Denial?
If your HOA denies a buyer within its authority, the buyer or seller should always request the decision in writing.
In the decision notice, your HOA board should identify the provision that authorizes the denial. It should also include an explanation as to why the application was rejected.
The parties should compare the stated reason with the governing documents and applicable state law. They should also review the purchase contract. An HOA-approval contingency may determine whether the buyer can cancel and recover the earnest money.
When the denial is due to missing information, the buyer may be able to submit a corrected application. If the decision appears arbitrary or discriminatory, the parties should speak with a real estate attorney. Prompt legal review may be important when a financing deadline or closing date is near.
Understanding the Limits of HOA Approval
Whether an HOA can deny a buyer depends on the authority granted to it to do so. This should be paired with an enforceable rule that applies and a valid, lawful reason for the denial.
HOA Explore offers a convenient way for community associations to find support from the right professional HOA management company. Use our online directory today!
Related Articles
- Why HOA Enforcement Fails: Gaps Boards Need To Fix
- Top Reasons To Consider HOA Living
- HOA vs POA vs COA Meaning, Differences And FAQs
“`html
“`
