Q & A on Buying a House with an HOA That’s Under Litigation

Q: I am buying a house with an HOA that is under current litigation. If I buy, and the HOA

loses, am I going to have to pay into this payout?

A: In general, the purchase of a home in an HOA community that is encumbered by recorded

Covenants, Conditions, and Restrictions (CC&Rs”) obligates the purchaser of a home to abide

by certain restrictions set forth in the governing documents or else face legal liability. Buyers

typically receive a copy of the CC&Rs in connection with purchasing a home. Some buyers

read the CC&Rs prior to purchasing a home, others unfortunately do not.

The CC&Rs, even if a buyer reads them, however, will not generally alert a buyer that there is

ongoing litigation affecting the HOA. For instance, let’s assume – applicable in today’s

environment – that there is a contentious lawsuit that is ongoing between two neighbors who

are utilizing their properties as short-term rentals and the HOA. The HOA claims this conduct is

prohibited under the CC&Rs and needs to stop and the two homeowners vehemently disagree.

Let’s further assume that the Court ultimately agrees with the interpretation of the CC&Rs being

proffered by the two homeowners and awards the homeowners their legal costs (or a portion

thereof) for prevailing in the litigation.

It is possible, or perhaps likely, that the HOA will issue a special assessment and/or raise dues

to accommodate the litigation case and result. This will affect all homeowners in the

community, even newer ones. Thus, any new homeowners who recently purchased a home in

the community will not be happy when this happens – and may look to the seller and wonder

why the seller did not disclose the fact that the HOA was embroiled in contentious litigation.

The question becomes, does the seller in this situation have an obligation to disclose the fact

that the HOA is enmeshed in litigation? First, in general, a seller only has a legal obligation to

disclose known material latent defects associated with real property which could impact property

value. Assuming the seller knew about the lawsuit, it is not clear that the seller would have

knowledge that the lawsuit would have a material impact on the community. That being said, if

a seller knows about an important lawsuit that “everyone in the community is aware of” involving

the HOA, and fails to disclose the lawsuit to the buyer, the seller may face civil liability for the

non-disclosure. The extent of liability will hinge on the individual facts of each case. When in

doubt, it is advisable to disclose.

Having the proper legal counsel on your side from the start can help you prevent any

unwanted setbacks and unforeseeable costs while purchasing this property. MacQueen

& Gottlieb, PLC has extensive experience with zoning laws and land use in Arizona. Our

highly experienced team of Arizona real estate attorneys is prepared to help you defend

your interests. Contact us today at 602-533-2840 to schedule an initial consultation or

make an appointment online.