Tuesday, July 23, 2013

Buying a Home in a Homeowners Association (HOA): do your homework

No doubt you've heard about the many problems associated with living in an HOA community.  Most of these problems, however, can be avoided with a few simple tasks completed by home buyers prior to closing on the purchase of a home.  Informed home buyers will be happier in their new community vs those who buy and find out later about the restrictions the HOA’s impose.  Almost every new community in Colorado is under some form of HOA governance.  The State has over 8,000 HOA’s and two thirds of the State’s population lives under some form of HOA governance.  It is becoming increasingly more difficult for home buyers to avoid an HOA community.

Before you buy into an HOA you should read the HOA's governing documents (referred to as by-laws).  They explain the controls, restrictions, and covenants imposed upon all residents.  You will be giving up some of your property rights and you must make an informed decision as to whether you can comply with this new living environment.  Furthermore, understand that if you don’t comply with these governing documents you are subject to fines.  You will also benefit by visiting the State HOA Office's web site.  This is a one-stop shopping, unbiased web site for HOA information.  It contains an HOA home buying guide. 

We recommend you review the latest HOA financial statement with particular attention to the HOA's reserve fund.  The reserve fund is simply money in an account accumulated from HOA dues to be used for future planned capital improvements and upkeep of the community.  This fund should be confirmed to be fully funded or you could be moving into a community that is financially distressed with future community maintenance problems.  Also, ask about any known current or planned special assessments.  These are financial obligations placed on homeowners for community improvements and can be material.  This financial obligation is in addition to monthly HOA dues.  Get information on the number of foreclosures in the community and the number of homeowners with delinquent HOA dues.  Delinquent dues of other homeowners must be made up by those who pay and that means you.  We suggest you find out about the percentage of rental properties in the community as this can sometimes have a negative effect on the financial well-being of the HOA, enforcing community standards, and the sense of community commitment by the residents.
Understand that HOA governing documents and State HOA laws are very effective in enforcement from the HOA Board's perspective but very weak for homeowners.  Holding your HOA Board accountable, exercising your rights (such as access to financial records and contracts), ensuring open and fair elections of Board members, and disputing abusive practices of a Board can be a very costly endeavor to the homeowner.  The only means of enforcing your HOA homeowner rights is our costly, litigious, time consuming court system that is basically not accessible to most homeowners.  Understand, such court cases will involve your limited funds and time against the HOA’s unlimited financial resources and their paid lawyers (even for simply disputes).   Groups such as the Colorado HOA Forum,
www.coloradohoaforum.com, are attempting to change State law to provide HOA homeowners a more affordable and accessible means of HOA dispute resolution that is needed to improve HOA homeowner’s rights.  See our web site for information on this topic http://www.coloradohoaforum.com/outofcourtbinding.html

There are many other home buying tips but if you follow the above you can mitigate many problems otherwise encountered in purchasing into an HOA community.


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