When purchasing property that is part of a homeowners’ association (HOA), buyers should be aware of the following five things:
1. The HOA’s Rules
The covenants, conditions and restrictions (CC&Rs) disclosure is one of the most important disclosure documents for a buyer. CC&Rs contain the rules that govern the HOA and restrict its owners. These restrictions include matters of architecture, paint color, decor, and other conditions of the interior and exterior of the property as well as the common areas of the development. If potential buyers plan to undertake remodeling or improvement on a property with a HOA, understanding the CC&Rs is a critical first step. The HOA can fine homeowners for violations, and in some cases can put liens against the property.
2. The HOA Fees and Finance
A buyer should know the fees they will be required to pay to the HOA and how much and how often the HOA fees may be increased. They should also check how much reserve the HOA has at the time of purchase. The buyer should find out if the HOA has sufficient income in the reserve to cover unexpected damages or events not covered by insurance. HOAs should properly maintain financial documents that include budgets, association reserves, outstanding loans and insurance policies.
3. Property Insurance
Insurance is particularly important if the property is in an area that is prone to natural disasters like floods, earthquakes or hurricanes. Buyers should review the catastrophic insurance policies of the HOA before purchasing.
4. Past HOA Meeting Minutes
Well managed HOA will have regular board meetings, and the recorded meeting minutes should include the discussions of the board. The minutes can reveal potential risks, past or current policy conflicts, owner complaints, potential special assessments and proposed changes to the CC&Rs.
5. Existing Violations and Community Management
Some properties offered for sale might have existing CC&R violations. Potential purchasers need to be aware of who is responsible for bringing the property in compliance. Further, some HOAs might be party to lawsuits with third parties or might be poorly managed. It is always worthwhile to investigate these matters prior to purchase. Some additional helpful information can be learned by reviewing Civil Code Sections 1365-1368.