5 Things to Consider about the Home Owner’s Association before Buying
Thursday, October 1st, 2009Written By: Kristin Duff
Home Owner’s Associations can have some pretty strict demands on your pocketbook and your lifestyle so here are a few things you should look for before buying in a neighborhood with one in place.
“I don’t know why it is that so many people don’t do more research on their homeowners association,” said Mindy Waitsman, an attorney with the Atlanta firm of Weissman, Nowack, Curry & Wilco, which represents about 900 owners associations and condo boards in the Atlanta area. “We all know at some level that our home is one of our biggest investments, but it just isn’t treated that way.”
Waitsman and others who deal regularly with the ins and outs of homeowners association rules and finances say it’s wise to gather as much information as possible about HOA finances and policies before signing a contract to purchase property within one.
Five things to check regarding the HOA governed property you’re considering:
1. Gather all the paperwork you can.
Not all associations will be forthcoming with documentation that provides a snapshot of the HOA, but minimally you or your real estate agent should be able to get copies of the bylaws or the covenants, conditions and restrictions (often referred to in shorthand as CC&Rs), according to Frank Rathbun, a spokesman for the Community Associations Institute, a Washington trade group that represents HOA interests. The CC&Rs are a blueprint for the HOA structure, laying down the rules for the board and its financial structure and how the condo building or development will be maintained.
A few other documents to look into getting are the annual budget, bylaws and regulations, board minutes and the association’s financial statement. Within those, you might get a sense of the HOA’s financial stability, whether it has ample reserve funds to cover emergencies, etc. HOA boards aren’t required to provide all this documentation to potential homeowners, but if a development has a professional management company, a manager might provide them, Waitsman said.
Getting a handle on the HOA finances is important, both Waitsman and Rathbun said — residents could be facing big increases in monthly fees or pricey special assessments, such as for roof replacement, they said.
“The reality is, community associations are businesses, and they should be run like businesses,” said Rathbun. “People have certain expectations with respect to services and amenities, and it’s the board’s obligation to provide those services and amenities.”
2. Ask About Foreclosures Within the HOA.
It might not seem important to ask about the foreclosures when you are buying, but it has become a major issue, and it should be addressed. In any locale, foreclosures can take a toll on the larger community, but they particularly impact HOAs, Waitsman said. That’s because neglected, unoccupied homes not only can be a blight, but homeowners in foreclosure probably aren’t paying their assessments. “One of the questions I would ask (of board members or management staff) is what percentage of the owners are delinquent” on their monthly assessments, she said. “Mortgage companies will certainly be asking that question.”
And if HOAs, as Rathbun said, are businesses, they can flounder just as other businesses can. At least seven Florida condo associations have filed for bankruptcy in the past couple of years, according to the Miami Herald. Most of them got into trouble not because of their own management practices, but because homeowners didn’t pay their bills. Declaring bankruptcy was necessary to keep utilities from cutting off services. Many associations have the legal right to foreclose on residents who don’t pay their annual fees, but in Florida and some other areas hard-hit by the housing economy, HOA management companies have begun to foreclose on owners who are behind.
3. “Am I a good fit for this community?”
HOAs are, in effect, a form of government, and might have rules you didn’t anticipate.
“You have to look at the restrictions, absolutely,” Waitsman said. “People don’t realize that they might not to be able to, say, put out a sign on the lawn saying you’ve just had a new baby, without their permission. Maybe you can’t have a garage sale without permission. You may think you can put in a fence, but you can’t.”
For some, certain rules have come as unwelcome surprises, occasionally leading to lawsuits over such things as erecting elaborate light shows on lawns at Christmas or even flying the American flag.
Such rules — which might also govern the size and appearance of a room addition or even a home’s paint colors — are intended to preserve the nature of the community, protect property values and meet the established expectations of the residents, Rathbun said. He said most residents seem to be comfortable with the idea of restrictions.
“In late 2007, we did a survey of community association residents, and 74 percent of them said the rules protect and enhance their community,” Rathbun said.
4. Before you buy, take a walk.
“Walk the community a few times,” Rathbun suggested. “Talk to the residents.”
Ask them if they’re happy with the way the assessments are being spent, he said. And inquire whether there’s good two-way communications between the residents and the managers or the board.
“Walk around, and you can get a sense of what it’s like living here, whether it’s well managed,” he said. Take a hard look at swimming pools, tennis courts, exercise rooms, playgrounds, etc., to gauge the attention to maintenance.
5. Is it OK to be a landlord there?
“The No. 1 thing that people don’t ever seem to ask (before they buy) is whether at some point they can lease out (the house or unit),” Waitsman said. “People never think of looking, but it’s always spelled out in the declarations.”
She said the matter varies widely from community to community — some forbid tenants, some may require an owner to wait a year before leasing, other may permit it only if they can prove financial hardship.
Waitsman said it’s not only a matter of concern to owner-investors who set out to rent immediately — in this real estate economy, homeowners who want to move may be unable to sell and renting is their only option.
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