Frequently Asked Questions

In the Maryland Homeowners Association Act (HOA) (Title 11B, Section 106 (f)), it states that “the provisions of subsections (a), (b), (d), and (e) of this section do not apply to the sale of a lot in an action to foreclose a mortgage or deed of trust.”

The REO seller of bank-owned property is not exempt from complying with the HOA.  As you correctly noted, the HOA does provide an exemption for properties in an action to foreclose a mortgage or deed of trust but not for lender owned properties.  See §11B-106 of the Maryland Real Property Article for more information. 

Contrast the above with Section 10-702 of the Real Property Article of the Maryland Article which specifies the seller’s responsibility to provide a buyer with a Disclosure/Disclaimer Statement.  This provision specifically exempts sales by a lender or an affiliate or subsidiary of a lender that acquired the real property by foreclosure or deed in lieu of foreclosure from providing the buyer with a Disclosure/Disclaimer Statement. This language is broader, and exempts both the foreclosure sale on the courthouse steps (or Deed in Lieu) and the subsequent REO sale by the foreclosing lender or its affiliate/subsidiary. 

However, there are no exemptions from laws like the Homeowners Association Act, the Condominium Act or lead paint disclosure as well as disclosures required by local law for REO properties.  Nevertheless, some federally chartered institutions are declaring that they are exempt from all such disclosures.  As of the date of this response, there is no controlling legal authority for that assertion. 

It is also important to remember that under both the Homeowners Association Act and the Condominium Act, a buyer may rescind a contract if the buyer does not receive the required disclosures and documents within the specified time.  Under the law, the buyer waives the right to rescind if the buyer proceeds to settlement not having received the documents.  Under the circumstances you describe, the time to enforce the statute is before settlement.  The buyer has no remedy after settlement and should be advised to seek competent legal advice before proceeding.

We apply a similar analysis to other disclosures, like state and federal lead paint, private water and sewer facilities charges, and various locally required disclosures.  Unless the seller can demonstrate, through production of controlling legal authority, that the seller is exempt from these requirements, the seller should comply.