Health is Wealth – The Importance of Being Informed About Your HOA

Usually created when the development is built, most condominium and town home developments (and many newer single-family subdivisions) Home Owners Associations (HOAs) are legal entities created to maintain common areas and have the authority to enforce deed restrictions. Before purchasing a home that is part of an HOA, it is wise to have a lucid understanding of the HOA’s governing documents including the covenants, conditions and restrictions (known as the CC&Rs), bylaws, operating rules of the HOA and Articles of Incorporation.

The financial strength of the HOA is always a buyer’s primary concern. To determine the “financial health” of the HOA, the financial documents must be meticulously reviewed and considered. Homeowners Associations have the right to impose assessments and fees on each member of the association to pay for operations and common area maintenance expenses. Assessments can be regular or special, depending on the purpose for which they are created. Assessments are calculated, collected and enforced in the manner required by law and as provided for by the HOA’s governing documents. The CC&Rs and the bylaws should describe the assessment process including how much the assessments can be increased and under what circumstances.

The HOA manages the community and performs repairs as necessary, including but not limited to: the roof, exterior paint, common area landscaping, electricity, water, fencing, garbage, pool, spa and sport courts.

If a major repair such as a new roof or repaving of roads is required the HOA must have the funds to pay for it. If funds are not available in the HOA’s reserve the HOA may charge a special assessment in order to pay for the required work. Should a special assessment be agreed upon and levied, each homeowner within the development would be responsible to pay a portion of the special assessment.

If a homeowner is unable to pay their HOA dues (and special assessments) the HOA may impose late charges. The CC&Rs should specify the guidelines regarding late fees and attorney’s fees and any related details. When dues are delinquent the HOA has the right to pursue legal action as well as report the delinquency to the credit bureaus, which could result in a damaged credit score. The failure to pay association assessments could result in the loss of an owner’s property through foreclosure. If a homeowner is considering or faced with a short sale or foreclosure they should seek appropriate advice regarding the ramifications of missed HOA payments.

Prior to making a commitment to purchase a home that involves an HOA, it is wise to speak with those who live in the community in order to assess how it is run. Walk the community and take the time to observe how well the landscaping, buildings and pool area are maintained. Contact and speak with the president of the association and the board members. There are also resources one can turn to for expert review of HOA documents such as Jacquie Berry at Community Association Datasource whose business consists solely of understanding and reviewing HOA documents and all rules, regulations, legislature and economic implications associated with HOAs.

Owning a property that includes an HOA can provide many benefits, however, being informed prior to purchasing such a property is highly recommended and will surely mitigate unwanted surprises down the road.