There is a growing trend that residential homes, townhomes, and condominium developments are part of a homeowners’ association (HOA). Anyone who buys a home in an HOA is bound by the terms and conditions of that HOA’s Deed Restrictions. HOAs typically involve ‘common property’. Depending on the situation, common property could be interior sidewalks, roads, walls, fences, gates, courtyards, parks, ballfields, pools, exercise, and recreational facilities. In the case of townhomes or condominiums, the building structure itself could be the common property, and the owners own only the interior space of each unit. For the common property, there will be maintenance costs that could be building maintenance, landscaping, road, pool, or recreation facility maintenance, garbage collection, paying for security personnel, and insurance.
All of the maintenance and periodic replacement or upgrading of the common areas require a steady income stream. The Deed Restrictions provide for each unit to pay a monthly or annual assessment. To secure payment, such an assessment creates a lien on the individual unit. An owner’s failure to pay the assessment may result in a foreclosure of their home.
The real estate developers of the property create the HOA and file the original deed restrictions (DR) with the county real estate records. To make the sale price of each lot attractive, it is not uncommon for the developers to keep the assessments as low as possible, with limits on how much it can be raised. Often the assessments are not sufficient for the long-term maintenance of the common areas, or the ability to have a reserve fund for capital improvements. Once all the units are sold, the developers leave the scene, with the HOA Board of Directors responsible for future maintenance. After 10 or 20 years, roads, sidewalks, and fences need to be replaced, pools need major upgrading. For townhomes and condominiums, roofs and HVAC systems need to be replaced or major foundation work done. If the annual assessment is insufficient, either the assessment must be increased or a one-time capital improvement assessment levied. Typically this can only be done by a vote of 50% or more of the owners, as set forth in the Deed Restrictions. It is not uncommon for this to be a huge problem If the money cannot be raised, this will result in an overall deterioration of the community and a significant decline in home values.
If you are considering purchasing a home in an HOA, pay particular attention to the finances of the community. This requires more than just inquiring “How much is the HOA assessment?” You will have to look to the future. Make sure that the HOA has a reserve fund for capital improvements, and that there is a mechanism for the periodic increases in the homeowner’s assessment to take into account inflation. Some Deed Restrictions allow the Board to raise the assessment within limits, without requiring a full vote of all the owners. Finding this out requires an additional level of due diligence. If these issues are not accounted for, the community could face a future economic time bomb, and you may not want to homeowner there.
For advice concerning Homeowners Associations, contact the Law Office of Elliott Klein, PLLC.