Buying a home in a mandatory Homeowner's Association? What to ask

I visited with Ben Capelle who is a real estate attorney in Dallas, TX. Among other clients, Ben represents several Home Owner's Assocations so his knowledge in this area is very extensive. Many people in north Texas purchase homes that are subject to mandatory HOA guidelines, membership and restrictions. Unfortunately, few of these buyers investigate the HOA before getting under contract and investing earnest money. In some cases, buyers have closed on the home without knowing anything about the HOA.

Ben Capelle put together this helpful list of what to look for when buying a home subject to a Homeowner's Association.

Thanks Ben!

Ken Stampe  http://blog.homeloandfw.com/

When purchasing a home that may be subject to a home owner's association, the first question the buyer should ask is whether membership in the association is voluntary or mandatory. If the association exists only to address architectural control or property appearance issues described in restrictions recorded on the property, it may be voluntary. However, usually associations, even in residential neighborhoods with single family detached housing, require membership and the payment of assessments to maintain common areas.

If membership in the association is required, the prospective buyer should make sure his seller or title company obtains a "Resale Certificate" from the association as required by law. The buyer should obtain a copy and review this before closing. The certificate will disclose important information regarding the amount of the assessments and whether the seller is current in his payments.

The buyer should ascertain whether the association has adequate reserves for future capital or significant maintenance expenses. If not, then it is likely the buyer will be subject to an increase in assessments, or a special assessment. The certificate will show whether the association has already started the process for an increase or a special assessment.

Nearly all associations have lien rights on the properties subject to the association's rules and policies. This means the association can act like a mortgage company and foreclose on the property if the assessments are not paid. It is important to review the association documents to determine the notice provisions that must be given as part of the collection process.

1. Does the association have to record a notice of the delinquency in the deed records?
2. Does the association have to file a lawsuit and obtain a court order before selling the property?
3. Can the association proceed directly to a foreclosure sale?
4. Does the association have to notify the owner's mortgage company before taking any action?
5. Is the association lien superior to, or subordinate to the mortgage company lien?

Another issue is whether the association, if a corporation, is in good standing with the secretary of state and state comptroller. A home owners association qualifies for non profit status and is exempt from federal income taxes (with some exceptions for income unrelated to its primary purpose) and state franchise taxes, but certain steps must be taken to insure this status is maintained.

This article is subject to copywrite protection. ©2006 Ben Capelle

For more information about HOA rights and restrictions or to inquire about having Ben Capelle represent you please contact Ben directly at 214-495-5680.