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A new owner has moved into your neighborhood. She worked with a real estate agent, had a closing at an attorney’s office, and everything went smoothly. But now there is a problem. The previous owner owed hundreds of dollars in unpaid assessments and charges that were not collected at the closing. You have recently informed the new owner that she now owes those amounts. The new owner is understandably surprised and is also surprised to learn that her property is subject to the neighborhood covenants which require her to be a member the homeowners association and pay assessments each year. The new owner responds that there must be some mistake because nobody informed her there are covenants or there were amounts still owed by the previous owner. She also says she never received a copy of the covenants at the closing. Unfortunately, this is a situation that occurs time and time again.

The new owner generally wants to know why she was not informed of the covenants and often asserts that the homeowners association should have informed her of the covenants. That is generally not, however, an obligation of the association. Georgia law is very clear that covenants recorded in the county land records constitute legal notice of the covenants. Whether or not the new owner was specifically informed of the covenants or signed anything agreeing to them is irrelevant under the law. Instead, because the covenants against her property are recorded, she is subject to them and is deemed under the law to have knowledge of them. Also, there is generally nothing in the covenants that would require an association to provide a copy of the covenants to an owner.

In regard to the assessments and charges that were not paid at the closing, covenants often state that the grantor (i.e., the seller/previous owner) and the grantee (i.e., the buyer/new owner) are jointly and severally liable for any amounts owed to the association that are not paid at the closing. The Georgia Property Owners’ Association Act (the “POA”) similarly states that unless the covenants state otherwise, the grantor and the grantee are jointly and severally liable for any unpaid amounts. Although the new owner may have claims for reimbursement against the previous owner, most covenants and the POA generally provide that the new owner becomes personally liable for all amounts that were not paid at the closing.

In addition to the new owner becoming personally liable to pay those assessments and charges, if there is a lien recorded in the land records that has not been paid, that lien would survive the closing and would need to still be paid. Also, the POA creates an automatic statutory lien against the property that survives the closing if it is not paid. The POA additionally includes a payoff provision that anyone purchasing property subject to the POA, or a mortgage company considering loaning funds to be secured by property subject to the POA, has a statutory right to obtain a payoff of the lien. If no payoff is requested, the new owner generally becomes personally liable for the amounts that were owed and for paying off the lien.

When this occurs, the new owner will usually argue that the closing attorney should have provided her a copy of the covenants at the closing and obtained a payoff of the lien. In regard to obtaining a copy of the covenants, that is usually not something a closing attorney does. The closing attorney represents the mortgage company. The closing attorney generally does not represent the seller or the buyer at the closing and generally does not have an obligation to provide a set of covenants at the closing. By contrast, in regard to paying off all outstanding liens, that is something the closing attorney should do. Since the closing attorney’s client is the mortgage company, the closing attorney’s primary responsibility is to make sure all of the deed and mortgage papers are properly signed and recorded and that the new mortgage is in a superior position to all liens. That generally requires the closing attorney to make sure all liens against the property are identified and paid at the closing.

If a lien is not identified and if a payoff is not requested, the lien will not be paid at the closing and will survive. The post-closing remedy of the homeowners association to collect those unpaid assessments and charges is often to seek collection from the new owner. If the new owner has title insurance, she can make a claim for those amounts to be paid from the title insurance company because such amounts constitute an encumbrance or obligation that were not paid at the closing. That is one of the purposes of title insurance. The new owner could alternatively inform the closing attorney of the closing attorney’s error in not identifying or paying those amounts at the closing or the title search company’s error in not identifying the lien. The new owner might be able to convince the closing attorney or title search company to now pay those amounts. Although these are potential post-closing remedies of the new owner, the homeowners association is not a party to that.

The new owner will also usually want to know why the previous owner did not inform the new owner of the covenants or of amounts still owed. The previous owner would generally complete and sign a Seller’s Disclosure Statement, which includes a section on covenants, mandatory associations, and annual assessments. The seller of the property should properly complete the form so the new owner is aware of that information. But if the seller does not accurately complete the form, then that is an issue between the seller and the new owner. The association is not a party to the sale of the home and should usually not get involved in that issue.

As you can see, a new owner often becomes liable for unpaid assessments and charges that were not paid at the closing. Even if the previous owner did not give correct information, or the new owner was not informed by anyone of the covenants, the new owner is nevertheless still legally obligated to be a member of the association, to follow the covenants, and to pay assessments. The new owner may have legal claims against the former owner or other parties, as mentioned above, but that is not an issue for the association. To avoid this situation, anyone purchasing property should always confirm whether or not there are covenants against the property recorded in the county land records and that all liens and obligations are identified and paid at the closing.