A Buyer Asks - Why Should I Look at the HOA Documents? What Should I expect to Find?
Not too long ago a first time buyer I was working with asked me "Why should I look at the HOA documents?"
She also wanted to know "What should I expect to find?"
These are excellent questions, and any buyer in Carlsbad or other nearby Southern California communities needs to understand the HOA they are potentially buying into.
Not all communities have an HOA (that's Home Owner's Association), but you can be sure if the property is a condo or PUD (Planned Unit Development) there is an HOA, and you had better understand as much as you can about the HOA, their Rules and Regulations, their financial standing (especially in this market of unpaid HOA dues, liens, short sales and foreclosures) before you move ahead with your purchase.
A huge part of the buying process in California is the due diligence period, and as a buyer you MUST use this time period wisely. Reviewing and understanding the HOA documents is essential in case there are issuesthat would make you decide to not purchase the property.
I am not an attorney so I cannot advise on the legal issues inherent in HOA documents, so seek legal advice if needed. You have a right, as a buyer to ask any questions and review the available information., and you may have some concerns or questions other than those I note below. Mine are intended purely as guidelines and are not an exclusive list of issues to review and consider during your purchase process.
RULES AND REGULATIONS
Are you OK with the specific rules and regs about pets, parking, improvements, use of the common space, parking (some HOAs do not allow street parking, nor parking of boats or RVs), your responsibilities as a home owner, etc.)
Is the HOA fiscally sound? Are they bringing enough money on a regular basis to cover their costs, expected as well as possible? Is there a substantial reserve for emergencies or they just getting by? Does the budget make sense?
You will want to know how many of the homeowners are delinquent in their monthly dues - if the HOA is not pulling in enough money then they cannot pay all the bills or other homeowners may be asked to up the anty.
Is there any litigation in place, either by the HOA toward a vendor or developer or homeowner, or are they being sued. Litigation makes lenders squirrelly - they often won't lend in a community where there is litigation pending. And depending on what it is it might make you pretty uneasy, too.
BOARD MEETING MINUTES
It's useful to see what actions the board is taking, what issues are brought before the board, the decisions they are making (or not making), and any projected fee increases or special assessments (which can be hefty - would you want to buy a condo if you knew there is a special assessment of $8000 coming?). If there are no minutes, or the Board is not meeting regularly in accordance with the requirements, these are red flags.
This is not an exhaustive list nor intended to provide you with all the information you should investigate or be concerned about. Hopefully it will help in terms of an overview, and will generate other questions you will want to ask the HOA if they are not specifically addressed in the HOA documents you are given.
TIP - you might also check on Facebook and Twitter to see if homeowners are talking about the communitiy in any way, good or bad. You might really get the scoop from the locals.
ADDITIONAL NOTE - it is not uncommon for HOAs to not share information with non-owners. Some of them are very difficult to deal with. The other problem we often see is that it can take a long time to actually get the documents from the HOA, sometimes 2 weeks from teh time they are ordered. So be prepared in your transaction!!