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More than 130 members of the Silicon Valley Association of REALTORS® attended SILVAR’s Los Gatos/Saratoga District tour meeting a few weeks ago and listened as Jacquie Berry, owner of Community Association Data Source, emphasized the greatest mistake any seller can make is an incomplete disclosure.

When dealing with homeowner associations (HOAs), it gets especially complicated because the law requires more disclosures from common interest developments (CIDs), in addition to the normal disclosures required in the sale of single-family homes. Common interest developments are condominiums and planned developments that are governed by a homeowner association which administers the property and is responsible for repairing, replacing, or maintaining the common areas. The homeowner association places restrictions on the use of the property and the common areas.

Berry shared the following statistics: There are over 48,000 homeowner associations in California; CIDs make up a quarter of all housing in the state of California; 49 percent of CIDs are self-managed and less than 25 percent are 100 percent funded in their reserves.

Berry said lenders are asking more questions about the financial health of HOAs so buyers won’t be caught by surprise by undisclosed defects in the common areas and underfunded reserve accounts, which result in special assessments. Agents and prospective buyers should review state laws, documents that HOAs are required to provide, and ask questions. She noted forms change, and homeowner associations rarely provide a complete or updated set of disclosure documents.

Also, HOAs may state they have adequate reserves to maintain deferred maintenance, but they do not specify a timeline for which these reserves are adequate. HOAs must prepare a reserves budget every year, providing a current estimate of the costs of repairing and replacing major common area components over the long-term. Ideally, reserve funds should be able to cover all major repair and replacement costs when needed.

“The value of the property is directly related to reserves,” stressed Berry.

Berry said it’s very important that these disclosures be obtained and reviewed by the appropriate professional so the buyer can make an intelligent decision as to whether or not to purchase the property.

“It’s all about disclosure,” Berry said. “It’s not about anything else but disclosure.”

Real estate brokers and salespersons who earn more than $100,000 in gross receipts from business operations per calendar year may now be required to register as a “qualified purchaser,” report and pay use tax directly to the California Board of Equalization by April 15 for the previous calendar year. This new requirement was promulgated by AB x4-18(2009). There is no fee for registration, but qualified purchasers will now have to pay the state’s use tax for out-of-state purchases directly with the BOE starting with the 2010 tax year.

REALTORS® began receiving notices and registration applications in the mail this week from the State. Completing the registration and making the use tax payment to the BOE for 2010 purchases prior to April 15 will prevent fees and penalties from being assessed. 

The use tax applies to most purchases from sellers who are not required to collect sales tax. That is often the case with Californians’ purchases from out-of-state or online retailers. The use tax was created as a companion to the sales tax in 1935 in order to protect California businesses that must regularly collect sales tax and would otherwise be at a competitive disadvantage to out-of-state vendors.

Use tax is administered by the Board of Equalization, but legislation enacted in 2003 provided individuals the option to report use tax on their state income tax return instead of filing a use tax return with the BOE. In general, consumers must pay California use tax if they purchase an item from an out-of-state seller and the seller does not collect California sales or use tax, and the consumer uses, gives away, stores, or consumes the item in this state.

While sales tax is owed to the BOE by the seller, the purchaser is generally responsible for paying the use tax. The use tax rate is the same as one’s local sales tax rate.

For more information on other taxes and fees in California, visit www.taxes.ca.gov

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