Many buyers decide to buy homes or condos that have a Home Owner's Association (HOA).

The HOA has a number of responsibilities, depending on how they are organized legally, but in generally they oversee the maintenance and care of a complex or subdivision, ensure the rules and regulations are followed by residents, collect the HOA fees and make sure bills are paid, and a myriad of other tasks. 

During your purchase transaction you will have the opportunity to investigate a wide range of issues concerning the property you are trying to by. 

Investigating the HOA is a critical part of your due diligence, for a variety of reasons.  

While this may work differently in other states, here in CA the escrow company typically orders the HOA documents once your transaction has entered the escrow process - there usually is a fee for this. This needs to be done as soon as possible in the process since getting the documents can take time and may hold up your purchase if you need to review them before removing your contingencies. 

These documents can be rather extensive, including CC & Rs, Rule and Regulations, Board Meeting Minutes (e.g., useful for understanding issues the Board is dealing with - repairs, planned assessments, security matters, violations by residents, plans to increase HOA fees), Budget and financials, among other paperwork the HOA shares.

It's important to understand how well the complex or subdivision is being managed, and to make sure they have adequate money in their reserves to handle maintenance, repairs and other activities the HOA is expected to do according to the legal documents. If the reserves are low you could be in trouble if a major repair comes up. 

A critical thing to know is whether there is any litigation involving the HOA; either them being sued or them suing someone else. I am not an attorney and cannot offer any legal advice about what litigation may be of greatest concern versus other lawsuits which may be lesser issues. The nature of the lawsuit could be important - if the HOA is being sued by the residents, for example (e.g., mismanagement of funds, failure to perform required duties), that could be a huge problem. If there is litigation in process I would talk with the attorney representing the HOA, and/or hire your own attorney to investigate - it would be money well spent.

Another complication is that a lender might not lend on a property where there is HOA litigation pending. Some MLS listings will state this up front, but that is not always the case. 

It is also important to know how many units are owner occupied in the case of condos (e.g., a minimum of 51%), as this will affect whether a lender like FHA will fund a loan. FHA will also not loan if the percentage of owners who are late in their HOA fees is 15% or greater (a common issue in complexes where there are substantial short sales or REOs). And some lenders, in the case of an REO, may request that the buyer pay the HOA fees that are in arrears. 

Since the HOA can play a significant role in how well run and maintained the complex is, which naturally impacts the value of your unit, knowing how well the property is being run and if there are legal problems is essential. 

So do your homework if you are purchasing a property in an HOA-run community.

After the fact you could get burned.

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If I can provide more information about Carlsbad real estate and surrounding areas, or the housing market in general, or otherwise assist you in your homes search, please contact me by phone or text at (760) 840-1360 or email me at JDowler@remax.net.

All content copyright © 2009 Jeff Dowler Carlsbad Homes and Real Estate Tidbits