NOTE: This is the first of 3 part series about Home Owners
Associations. This article introduces the topic. The 2nd in the series
features a very helpful interview with Joe West, CEO of the Community
Associations Network about the issues buyers should know about Home Owners Associations before they sign on the dotted line. Part 3 focuses on the transition from developer-run HOA to one controlled by the HOA.
Many people moving into an active adult community will find new meaning
in the lyrics from that great 70′s song by The Who, “Won’t Get Fooled
Again”. In the song the punch line is “Meet the New Boss, Same as the
Old Boss”. That’s where Pete Townsend warns that “the new revolution”
might not be any better than the last one.
The parallel for baby boomers moving into a 55+ development applies to
the Home Owners Associations (HOAs) that govern most these communities –
be careful what you are buying into.
The subject of Home Owners Associations is a very complex one and
cannot be adequately covered in one short article. In this piece we will
try to lay out some of the broader issues that you should be aware of
when moving into a community governed by a Home Owners Association.
If you have been living in the suburbs in a single family house for
the last 30-some years, you might not be prepared for the minutiae that
your new Home Owners Associations is lord over. To name just a few such
rules:
- Dress code in public areas; joggers must wear shirts, cover-ups in common areas, etc
- Pets can’t weigh over (25, 40, ?) pounds
- Number and breed of pets is restricted
- Use of common areas like pools, picnic areas, and trails prohibited after (9, 10, ? PM)
- Renters must rent for at least (1, 3, ?) months (or no renting at all)
- Renters cannot use certain facilities on same terms as owners
- Parking restrictions apply by location or type of vehicle
- Guest restrictions
- And on and on and on
This is not a piece against Home Owners Associations. They are an
important and welcome component to successfully living in a 55+ or
condominium development. These organizations are essential to the
effective operation of any community: they set the rules, enforce
compliance, manage the assets, and look out for the financial and legal
well being of their communities. The people that volunteer for these
boards tend to be unsung heroes – they work hard and they spend a lot
of time unraveling really thorny questions. Far too often their only
reward is to be interrupted and criticized everywhere they go by someone
whose narrow self-interest was affected by a policy or rule.
Some folks have a constitutional inability to live around rules. Those people might want to think twice before moving into a community with an HOA, because the association is going to have a lot to say about what goes on (or doesn’t go on) in their new community. As an extreme example, if they want to have junk cars or funny lawn ornaments in their yards, or have a pen full of barking beagles, an organization with an HOA is a bad fit.
Regardless of whether you go into your new community positively or
negatively disposed towards HOA’s, here are some considerations you
should keep in mind.
1. Due diligence. Before you buy your new home find
out as much as you can about your HOA. Read the rules, check out the
minutes, and assess the financial condition of the HOA. This step is
crucially important so you are not surprised later on.
2. Be aware of the law. Some states, notably Florida
and California, have extensive laws regulating Home Owners
Associations, while other states have almost no law on the subject. You
should be assured that your association is following both the
regulations and best practice. For example, you generally have a right
to prompt and accurate minutes of official HOA meetings.
3. Learn about the problems your community might be facing.
Some issues to be concerned about: foreclosures or delinquent dues;
excessive litigation with neighbors, former owners, or tenants; overdue
major maintenance items (and funding thereof).
4. Who are the people on the board? It is always
wise to meet with at least some of the current board members. Ask them
about the big issues facing the community and get a sense for their
qualifications and ability to handle them. The quality and expertise of
the board is extremely important to handle the significant issues they
face.
5. How effective and how prepared is the HOA for handling troublesome issues?
Until you move into a community you probably aren’t aware of all of the
issues that need to be managed – it can be almost as complex as running
a small town or a very large business. Some of these include:
- Major maintenance sinking funds (money put aside for future major projects like paving, roofs, elevators).
- Annual fee increases, assessments, and budgets. What is the history of increases? Look for an organization with steady, modest increases and an absence of unexpected assessments. Erratic fees and unpleasant surprises are usually a sign of ineffective management.
- Insurance. Is the HOA adequately covered for legal and natural disasters? Are they paying too much or have the wrong policies in force?
- Pets. Few issues cause more trouble between sometimes oblivious owners and touchy non-owners. Sizes, breeds, numbers, access to facilities – the potential areas for conflict are legion.
- Renters. How long (or how short) can they stay, do they have equal access to facilities?
- Visitors and family members. What are the rules about visitors, especially younger people in a 55+ age restricted community?
- Facilities. Go to just about any facility (swimming pool, exercise room, etc.) within an active adult community and look for the list of rules. Dollars to donuts the list of potential infractions will be long and onerous. That’s because someone, somewhere, was inconsiderate. Once they annoy the wrong person, a rule will come out to try to control that issue.
- Water leaks. In many communities water leaks, particularly in unoccupied units, are a major issue. Are there policies and procedures for prevention and remediation?
- Environmental problems. Mold, asbestos, chinese dry wall, leaking oil tanks, natural disasters – all of these issues must be handled intelligently.
- Personnel. An HOA usually has employees – sometimes a facilities or property manager, a business manager, security guards, maintenance personnel, clubhouse and possibly restaurant workers. Does the HOA hire effective managers and monitor and review their performance?
- Rule making history and enforcement. An effective HOA has to be a bit like Solomon. They must have specific and general rules in place to cover most contingencies, and be prepared to reasonably address problems that come up unexpectedly. Look out for long lists of petty rules that try to cover every narrow issue that ever emerged. On the other hand when truly troubling issues come up, like one we know of where a disturbed adult child continually harassed his neighbors, is the board up to the task of removing the source of trouble?
6. New communities often have a bigger challenge. A
new development generally forms an HOA soon after the first owners move
in. At the beginning there might not be a big talent pool to draw from,
and there is no institutional experience. So the new HOA’s track record
might be rocky at first.
7. Be prepared to serve. Like we said earlier, there
is no great reward for serving on a volunteer HOA board. But somebody
has to do it to ensure the success of the community. Particularly if you
have management, legal, or building related skills; and especially if
you have common sense, volunteer to take your turn on the board. Someone
has to run the place; you might as well know the person doing the job!
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