What to Look for in the HOA Documents
If you purchase a home in a managed community, congratulations, you’re about to become a member of, and be governed by, a homeowner’s association, also known as a HOA. You’ll be given a mountain of paperwork by this association and, believe me, these are some of the most important documents you’ll read in your lifetime.
This paperwork package is known as the Resale Disclosure Package in some areas, or merely “HOA Docs” in others. Now, I didn’t say these documents would be interesting; unless you are an accountant or a lawyer, you’ll be bored silly. They do contain, however, information that is vital to your decision as to whether or not to purchase the home. Let’s take a look at some of these documents and how they might affect your that decision.
This acronym stands for covenants, conditions and restrictions. These are the governing documents for the HOA and the rules that you, your guests and your tenants must abide by. From the number and size of pets you can keep in the community to where you are legally able to park, the CC&Rs will dictate how you live.
Failure to abide by the rules means a hefty fine. If the fine goes unpaid, the HOA can pursue foreclosure proceedings on your property. Here are just a few of the items that may be regulated by the CC&Rs:
- Exterior paint color
- Outdoor play equipment such as swing sets and basketball hoops
- Window coverings
- Garages and outbuildings
- Holiday decorations
- Garbage and recycling containers
- Home businesses
What to Look for in HOA Documents
Several documents in the HOA package require close scrutiny. Look for the following:
The HOA may have a lawsuit underway or pending for any number of reasons. The most typical litigation is against the builder for construction or structural defects but the litigation may also be against the HOA, such as in a slip-and-fall situation. Most lenders won’t approve a loan until the litigation is settled.
Special assessments are levied against HOA members to remedy a shortfall in the reserves fund. Determining how much to set aside in the reserve fund every year isn’t an exact science. Then, events such as homeowners not paying their dues and underestimating the cost of expensive repairs can deplete the reserves. HOAs then either raise the monthly HOA fee or levy a special assessment. Consider it a red flag if the latter has happened frequently over the life of the HOA.
While you look through this part of the HOA documents, look for mention of any major projects planned and whether the HOA reserve fund can cover their costs.
HOA meeting minutes hold some interesting tidbits of information. One of the first things to look at is the complaints from homeowners – look even more carefully to see if these complaints are voiced repeatedly, over the course of several meetings. If they are, the HOA may be unresponsive to homeowner complaints, another potential red flag.
No matter how attractive that condo is, or how appealing the common areas and amenities are, it’s not worth buying if the CC&Rs impact your lifestyle and restrict your freedom. If you have any questions about what you find in the documents, have your attorney review them.
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