This might seem like a boring part of the purchasing process, but it is also a very important one! Reviewing the HOA documents is a critical step to ensure you are buying a sound property. Even though the property itself might be nice, if the HOA isn’t in good working order, it might turn out to be a property you do not want to pursue after all. When you are buying a property in an HOA (Home Owners Association), you are not only buying the property but you are also buying into a community of other people, and you are subjecting yourself to rules and regulations that the HOA imposes.
So in this step of the process, you will want to ensure that the HOA is financially sound, and also that it does not have any rules that will prohibit you from buying the property (for example, if the HOA does not allow pets and you have a dog, that would be a problem!).
Here is a list of documents that are common to all HOA’s. You will be getting these documents either via email or web access. The descriptions and Q&A’s below will help guide you through these documents.
These are “notes” from the most recent HOA meeting. These are important because they reveal issues that are pending, or are in process…so the Meeting Minutes provide a glimpse into the future.
This shows how the finances of the HOA are projected to be handled going forward. The Budget is usually based on last years Financials, and any adjustments (up or down) are made to cover increased maintenance costs, energy bills, needed repairs, future repairs, etc.
This document will show you the Balance Sheet and Profit & Loss Statement. The Profit & Loss Statement is key…think of the HOA as a company…it needs to be profitable to run efficiently and effectively. Sometimes the Financials will also include a report of who is behind in their HOA dues, if anyone.
The Bylaws are the guidelines for the operation of the HOA. The Bylaws define the duties of the various offices of the Board of Directors, the terms of the Directors, the membership’s voting rights, required meetings and notices of meetings, as well as other specific items that are necessary to run the Association.
Declarations (also referred to as “Decs” or Covenants, Conditions, & Restrictions, or “CC&R’s”):
These are the governing legal documents that set up the guidelines for the operation of the community as a non-profit corporation. They were recorded by the County recorder’s office of the County in which the property is located and are included in the title to your property. Failure to abide by these may result in a fine to a homeowner by the Association.
How is the amount of HOA Dues determined?
The Department of Real Estate typically requires an initial budget from the developer for each community that a developer proposes to build. This budget is set upon specific guidelines for utilities, landscaping, administration, etc. Reserve funds are monies set aside for future expenses due to the life expectancy of certain items: lighting, street resurfacing, pool equipment, etc. These amounts are then divided by the number of units built in a given phase of the development. Subsequent budgets are developed by the Board of Directors and adjusted periodically to meet anticipated expenses.
Will my HOA Dues go up?
Yes, more than likely they will. HOA dues are not “fixed” like most mortgage payments. As energy (power, gas, etc) prices rise so will your HOA dues. The cost of maintenance (cleaning, landscaping, etc) will also go up which will cause your HOA dues to rise. The cost of insurance will also rise over time (just like any other insurance) which will also cause your HOA dues to increase as well.