About 20 to 30 years ago, residents of condo and townhome complexes were the predominant group of homeowners who were faced with the ins and outs of HOAs, or home owners associations. These days, they are par for the course in the majority of neighborhoods, subdivisions and planned communities. However, always knowing what to expect from an HOA can be murky territory.
Of course, the HOA operations are straightforward enough. The monthly or annual dues are collected for ongoing maintenance, repairs and often insurance. Then, as the needs arise, there may be special assessments for upgrades or improvements, such as new landscaping, resurfacing tennis courts, or sprucing up common areas such as the clubhouse or swimming pool facility.
Sometimes, when a prospective buyer discovers the price of the monthly HOA dues, which will be on top of the mortgage payment, it causes them to reconsider. Then there is the fear that the dues will continue to rise and costly assessments will continue.
Just what are the rules when it comes to HOAs and what they can and can not do?
Here’s a look at a few scenarios and explanations:
Do HOAs have a limit for how high they can raise the annual dues?
The bottom line is that there is no limit and dues can be raised as high as necessary in order to meet the community’s annual budget.
Most HOAs are designated as nonprofit corporations. Homeowners automatically become members when they buy property. Board members are selected from within the group of property owners and they in turn are in charge of running the show. The HOA’s responsibilities will entail obtaining estimates and paying for the community’s routine maintenance, repair, upgrades and utilities for common areas. Please note, that according to legal information website, NOLO.com, “In a brand new development, until a certain percent of the property is sold, the board of directors will likely comprise of the developer and its representatives.”
After reviewing the projected costs for maintenance, repairs and upgrades, the HOA will create an annual budget. This budget is what determines how much each property owner will need to contribute. Special assessments are additional charges that come up for extras or emergency items not already included in the original budget.
How often can the dues increase?
Of course because of inflation, HOA’s annual budgets often require yearly increases. This issue leads to homeowners paying more than the original price they were quoted for their monthly dues. This can happen for a variety of reasons such as damage from natural disasters or unexpected repairs that can crop up such as undetected water damage and subsequent rot and mold.
Although the increases are usually for the common good, it can also make a homeowner feel as though they are being taken advantage of.
How can I know what to expect before I buy?
Before taking the plunge and committing to a home purchase that will include HOA dues, make sure to obtain a copy of the community’s “Declaration of Covenants, Conditions, Restrictions, and Easements” or CC&Rs. This is considered the fundamental operations manual for governing an HOA. The CC&Rs should spell out vital points including how much the HOA can increase dues and assessments. NOLO’s example states, “the CC&Rs might limit increases in periodic dues to 2% per year, or assessments to a maximum annual dollar amount.”
This is also a case of getting what you pay for. Beware of HOAs with rock bottom dues because when the time comes, the funds may not be in place for serious needs. Subsequently, the place gets in a state of disrepair and your property values suffer.
Some states have laws in place that govern the percentage that annual HOA dues are allowed to go up along with provisions that regulate caps on assessments. The best way to find out this information is to contact a real estate attorney in your state.
Here are a few helpful resources where you can learn more about HOAs:
HOA Dues and Chapter 7 Bankruptcy – NOLO.com
FAQs About Buying a Condo – eLEND.com
Search for Real Estate Lawyers – Lawyers.com
Finally, remember that you are not at the mercy of your HOA. Everyone has one vote and an equal say, regardless of whether you are on the board or not! Stay on top of things by regularly attending meetings, reading e-mails and newsletters and of course discussing issues with your neighbors.