An HOA or homeowners association also referred to as a condo association if the property is in a condo or townhouse complex, is a set of rules, board members, or resident-run management that determines general rules and regulations for all homeowners and tenants. Before buying a condo or townhouse you should have a few questions about the HOA to determine the health of the Association, bank accounts, delinquency rates, and whether it's a healthy Association overall. But, there are some major red flags to be aware of when looking for and buying a condominium.
Here are five red flags and HOA is in trouble.
#1. They have no reserve funds.
The Association should have some reserve funds set aside for major repairs and maintenance. If that bank account is dwindling rapidly or is practically nonexistent, guess who's going to have to pony up the dough when it comes to major replacements and maintenance such as roof replacement, citing maintenance, major landscaping, or building painting? That's right, you. You may be issued a special assessment adding to your homeowner association dues and this could be quite extensive depending on how much the Association needs for the repairs. A healthy reserve means you won't be issued a special assessment and have to come up with added funds each month to cover these maintenance repairs.
#2. There are major maintenance issues not being taken care of.
If you drive through the complex noticing broken down buildings, the landscape in disrepair, or general maintenance that has been neglected, chances are the Association and committee are not managing the property appropriately. This is definitely something to question before buying the property.
#3. Condo fees are too good to be true.
You have a pool, community clubhouse, cabana, social clubs, tennis courts, and the list goes on and on… All for $100 a month. That sounds a bit fishy. If it sounds too good to be true, it probably is and like I said in #1, you'll get stuck with the added fees. There could be a reason the condo fees are so low even with added amenities. Some builders can advertise low association fees to attract buyers in the door of new condos but then raise those fees within the first 1 to 2 years and that could be a substantial increase in dues each month.
#4. The Association owns services that operate in the community.
This can be a tricky one but if service contracts for community or building maintenance are companies that have an affiliation with the Association or certain board member or one that has steak in one of the maintenance companies, this could be a conflict of interest and may also lead to fraud or corruption. It's perfectly fine for a board member to suggest a maintenance company but to have direct affiliation or kickback from that company is a bit shady.
#5. Litigation, liens, and court cases against the Association.
If 10% of the condo owners are suing the Association, chances are something has gone amiss. It happens from time to time the condo associations will go under litigation based on noncompliance, someone not paying, or other issues that could be random, but if there are several litigation issues and frequent complaints, that should be a big red flag that the Association is not doing their job accordingly.
Finding the right condo association and community takes a little bit of questioning. Make sure that you are satisfied with your purchase long after the initial shiny rubs off.
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