This is the 2nd of a 3 part series of articles about homeowners
associations, the organizations that have an outsized influence on your
life in a condo, 55+, or active adult community. The first article, “Meet the New Boss, Your HOA”, talked about many of the problems to be of aware of concerning Home Owners Associations. Part 3 focuses on “What You Need to Know When the HOA Takes Over from the Developer“. In this article we were fortunate to gain an in-depth interview with Joe West, CEO of Community Associations Network, who provided his insight on the basics everyone should know before they commit to living in any community
governed by an HOA. Joe’s organization, which is found at
Communityassociations.net, is the largest free website of information
for condo and HOAs. The third article in the series will cover the
important points to consider when the day-to-day management of the
community passes from the developer to the HOA, which typically happens
once all or most of the units have been sold.
TR: What’s the first thing we should know about Home Owners Associations?
TR: What’s the first thing we should know about Home Owners Associations?
Joe: The first thing that you need to know is what the association is responsible for and what you, the owner are responsible for. Sometimes the terminology can be confusing. In a condominium association, generally the association takes care of everything from the perimeter walls out, including roofs, siding, roads, lawns, etc. In a Homeowner or Property Owner association, the association generally takes care of the common areas, which may include roads, gates, amenities and so on. They usually don’t take care of the home or structure, itself. However, this will vary from association to association and from state to state. In some states, the media and owners often refer to both types as “HOA’S”, even though it may actually be in a condo. This is why it’s so important to read and understand the documents, sometimes called “CC&R’s” (Covenants, Conditions & Restrictions) or Master Deeds & Bylaws. The generic term “Community Association” covers all of the forms of associations where membership in the association is mandatory. Unfortunately, laws governing the nation’s estimated 270,000 residential and commercial HOAs are confusing and sometimes non-existent. States like California and Florida have extensive laws governing them, but many other states have just a condominium law or a poorly written, often amended HOA law. As we shall see, the absence of clear legal guidance can be a problem.
TR: Joe, what is your number 1 piece of advice for anyone buying into a development with an HOA?
Joe: That one’s easy – Don’t fall in love with the house before you check out the association. You have to be comfortable with a few important things: the rules that you will have to follow, the people governing the organization, and its finances.
TR: Could you give us an example of why that’s important?
Joe: Sure. Especially today, because of the economy, there are some community associations where a 1/3 or more of the owners are not paying association dues. What that means is that at least in the short term, the remaining residents will have to make up for that by paying higher fees and special assessment s. The people who live in condos generally understand that the building has to be maintained and that there will be expenses required to keep it running. But in HOAs, particularly those with predominately single family homes, the new residents don’t realize the scope of the infrastructure that has to be maintained – roads, landscaping, recreational facilities, etc. That requires money, but the benefits aren’t always visible. Similarly new residents are usually not prepared for the amount of HOA control they are now under. After years of living in the suburbs where their home is their castle, many become upset when they realize that exterior colors, fences, decorations, and improvements will be tightly controlled in their new community. One of the key areas that is often overlooked when someone is moving into the association is, how does the board govern? The basic rule of associations’ is that good boards make good associations – bad boards make problems. Make sure you read the minutes of board meetings before you move in (at least a year back) and once you live there, pay attention to what’s going on and who you elect.
TR: To be better prepared, what steps should a new buyer take
before entering into a contract to buy a home with a Home Owners
Association?
Joe: The first step is to gather the information to help you assess the HOA. Unfortunately that’s not always easy. In many states, the HOA is often prohibited from providing a new buyer with information directly. So anything you get will have to come from the seller. You should ask for the HOA master deed and by-laws (governing documents), recent minutes, and financial statements at a minimum. While some states, like Virginia, have strong disclosure rules protecting buyers, many other states have no rules at all, even though disclosure is in everyone’s best interest.
Secondly, you either have to read and understand these documents
yourself, or hire a lawyer, financial planner, or accountant to review
them for you.
Third, if the seller unreasonably delays getting you the documents,
or won’t provide the information you asked for, be prepared to walk
away. There is probably a reason why they won’t, a reason you want to
stay away from. At a minimum you can get some of this information by
going to the local office where deeds are recorded and ask to see the
restrictions and covenants that are attached to the property.
Unfortunately, the minutes and financials (last audited financial
statement, current year-to-date financial statement and current budget)
will probably have to come from the seller.
TR: What kind of problems are you seeing in HOAs and condo associations these days?
Joe: First, let me say that the vast majority of these associations are well-run. They take care of problems and they maintain their properties. The problems we see among community associations usually come when they are not proactive, instead reacting only after an issue has arisen. There are many problems that can occur in a community, because you are dealing with people and their “castles”, but most of them can be avoided with planning and oversight. More problems are coming up all the time, and associations need to be ready for them. Since the advent of the Internet, a issue in Florida can and will become an issue in New Hampshire at lightning speed. A recent case in Chicago, where a Jewish couple’s mezuzah was prohibited on the exterior condo door frame (a common area), is a good example. That case led to a discrimination suit because Christmas wreaths were allowed on doors. Thanks to the Internet, it quickly became an issue for communities across the country. Pro-active solution: What can or can’t be placed on a common area needs to be thought out in advance and take into consideration our multi-cultural, multi-religious society.
Another big problem is not being pro-active financially, which means
planning ahead and establishing reserve funds. Condo associations
generally understand the need to plan for and adequately fund reserves,
but often HOA’s ignore or underfund them. If the board never gets around
to setting up a reserve for their maintenance or replacement, a big
assessment will come out of the blue some day and cause much heartache.
Lastly, lack of transparency is a frequent HOA board problem. Meeting
minutes should be quickly and prominently posted. Members of the
community have a right to know what is going on and have the ability to
provide some type of input. Associations should have newsletters and a
web site to provide solid information on a timely and continuing basis.
TR: Thanks Joe, we appreciate your advice.
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