Buying a new home can be an overwhelming process. The amount of paperwork is staggering. When buying property that is part of a homeowners’ association (HOA), the paper work is increased due to a statutorily-mandated set of additional disclosures regarding the HOA (Civil Code Sections 1365 – 1368 and 1375). In this third installment in this blog series (part 1 and part 2), I will discuss some of the more important issues to look out for in the HOA disclosures.
One of the vital elements of the HOA disclosures is the Covenants, Conditions, and Restrictions, commonly known as CC&Rs. The CC&Rs contain the rules that govern the HOA, and some of the things you might find the in CC&Rs could impact your decision to buy the property. Previous blogs discussed potential restrictions relating to improvements to your home or restrictions on use. However there are several other potential pitfalls to look out for when reviewing CC&Rs and HOA disclosures.
Past Board/HOA Meeting Minutes
A well-run HOA should have regular meetings. How regular is somewhat dependent on the size of the HOA, however in no case should the HOA not at least meet once annually.
Moreover, the HOA should maintain minutes of these meetings. The minutes should include a description of what was discussed. The minutes are an excellent resource to learn about what is going on in the HOA. The minutes may mention common area projects that homeowners are considering, complaints owners may have about the HOA, potential upcoming special assessments, potential changes to the CC&Rs (some of which changes may have a significant impact on your intended use of the property, ie prohibiting short term rentals or restricting pets) etc. It is possible the seller is not involved and does not attend these meetings, so the meeting minutes can be a useful resource.
Larger HOAs may also produce monthly or quarterly newsletters. The newsletters are another resource for buyers to learn about issues that may have not been disclosed about the HOA.
The HOA’s Finances
HOA’s should maintain financial documents that include an operating budget, a summary of association reserves, a summary of any outstanding loans, and information on all association insurance policies, among other things. Again, size of the HOA is a significant issue in determining whether the HOA is properly funded, but potential purchasers should make sure the HOA has funds in reserve to cover unexpected damage or issues, along with sufficient monthly income to cover all expenses in addition to building up the reserves.
Consider Your Own Research
If after a review of all the items discussed in this article and the prior two you still are not comfortable, keep researching! Try and speak with the Board or Property Manager to get their honest opinion. Walk the property and look at the condition of the railings, roof, siding and any other building components. Have a property inspector inspect the common areas for potentially expensive upcoming issues. Search the internet. Talk to owners. Make sure there are no past or active lawsuits involving the HOA or members.
Ultimately, the more information one gathers, the better. Owning in an HOA has benefits including cost-sharing of maintenance, but there are also disadvantages. Identifying these disadvantages prior to purchasing is critical, and we hope this series has been helpful.
Of course, the issues discussed above are among the concerns that clients have raised with us. However, it is critical that a buyer carefully review the CC&Rs and disclosures for themselves. What may seem insignificant to one buyer may be a deal-breaker for another. Therefore, the above items are not intended to be an all-inclusive list, but instead a guide as to some of the more common issues that have caused concerns.