Love Buying a Home – Week 11

This step-by-step series will take you through the entire home-buying process — from finding a buyer’s agent to settlement day, and all the details in between. Every first-time buyer will find this information-packed series easy to follow and understand. Make sure to tune in for the next few weeks!

As a potential buyer in a HOA community, it’s important that you know what rules you’re singing up to follow for before you actually sign on the dotted line. Unfortunately, too many potential buyers shy away from fully reviewing HOA documents because of intimidating legal and industry jargon. This usually results in new owners becoming disgruntled or in an ongoing conflict with the board.

But you didn’t go to law school and you don’t work in the HOA management industry, so how are you supposed to make sense of HOA documents? Fear not! With a few tips and explanations, you can be well on your way to understanding HOA documents and the knowing the most important elements to look out for before you buy.

First, let’s look at the different parts included in the HOA documents you should be reviewing. Typically, the governing documents of an HOA include:

• Articles of Incorporation – These include basic information like the association’s name, location, and purpose.
• Bylaws – These describe the association’s rights and responsibilities and rules about how meetings must be held.
• Declaration of Covenants, Conditions and Restrictions (CC&Rs) – These define the rights and responsibilities of owners as well as restrictions on the use of owner’s property and common areas.
• Rules and Regulations –These are more detailed specifics about rules that members of the community must follow to be in accordance with the CC&Rs.

And if you want to be really informed (which I recommend), you should also review:

• A statement of the current homeowner’s dues
• Copies of the association’s financial records that cover the previous 1-2 years
• Copies of the association’s meeting minutes from the past 1-2 years

You can request copies of these documents from the HOA directly, through your real estate agent, or through the title company handling the purchase and sale transaction.

What to Look For

Now that you have a copy of all the important HOA documents, you need to know how to dissect them. Here’s a brief overview of what to look for in each of the important documents mentioned above. And while you’re at it, you might want to keep a glossary of common HOA legal terms on hand.

Articles of Incorporation

You’re off to an easy start with these! These are usually brief and only include basic information about the association, so there’s really no need to spend too much time reviewing the Articles of Incorporation for your homeowners association.

Bylaws

If you have a preference about how much power you want your HOA board to have, you’ll want to pay close attention to the bylaws. These will explain the procedures for elections to the board, term limits for board members, and if the association can hold closed meetings(also dependant on state law). The bylaws will help you understand how the association functions and the power and/or restrictions it has so that you won’t run into any surprises if you become an owner in the community.

CC&Rs

This is where document review becomes really important for potential buyers! You should become familiar with these to make sure you can live (contently) with the established covenants and restrictions as an owner. For example, if you’re interested in purchasing real estate as a rental property, you should ensure that the CC&Rs don’t restrict your ability to do so. Do the CC&Rs restrict that satellite dish that you just can’t live without? Or do they require you to mow your front lawn once a week when yardwork isn’t your top priority? CC&RS exist to make the community pleasant for everyone to live in, but the key is that owners need to be willing to abide by the rules for the greater good.

Rules and Regulations

Similar to the CC&Rs, you should do a thorough review of the rules and regulations of the HOA since they can change often and are more specific than the CC&Rs. These are usually the most controversial documents because they can be enacted by the board without a unanimous vote by the members. Rules and regulations can cover anything from restricting yard signs or front porch accessories to regulating fence height, house colors, or the size of pets that members can own. Just like with the CC&Rs, it’s important that you’re familiar with the rules and regulations of an organization so you can determine whether or not you’ll be a happy homeowner while abiding by them.

Financial Documents

Taking a look at the history of homeowner’s dues can give you a good idea of how much and how often you’ll need to pay your dues, and whether hefty increases in HOA fees may be in your future. This can help eliminate some unpleasant financial surprises that a lot of new uninformed owners encounter.

Reviewing the financial documents of the association can also give you a good idea of how organized and financially sound it is. Does the association collect enough to meet the budget and maintain a healthy reserve fund, or is it essentially just scraping by? This could tell you whether or not you may be obligated to help fund emergency projects in the future in addition to your scheduled HOA dues.

Meeting Minutes

While these might seem like the least pertinent documents to review, they’re actually pretty important. Meeting minutes can provide insight into how well the association is run (look out for consistent conflicts or arguments between owners or board members) and can also give you a heads up about any upcoming special assessments that you may be obligated to pay for as a new owner.

Now give yourself a pat on the back for reaching the end of this post! I hope these few tips have helped you understand not only how to make sense of HOA documents, but also why understanding them is so important for you as a potential buyer. Remember that when it comes to HOA documents, the more you know, the happier you’ll be as a new homeowner. Taking a few minutes now to be informed will pay off later!

We’re heading into the final weeks of my Love Buying a Home series and also for your final steps to buying a home. You’ll get the nitty-gritty in the next article, Almost There … Pre-Closing Details for Buyers.  It provides a breakdown of what to expect so you’re ready for the big day.