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3 Things to Watch for When Buying into an HOA

Neighbor & Nuisance Disputes and Real Estate Law by Peter N. Brewer, Esq.

1. CC&R’s Contain Rules That Could Cramp Your Lifestyle.

When a buyer is handed a thick stack of documents from the property management company and faced with just a few days to remove the inspection contingency, it’s tempting to avoid reading these poorly photocopied, blurry, text-dense pages. Don’t avoid reading these critical documents!

What are the CC&R’s? They stand for “covenants, codes and restrictions” and they memorialize rules the developers created that affect the property you are buying. They are recorded against the property and “run with the land.”

Some restrictions are fairly broad and leave room for interpretation but some are very specific, down to the paint colors and types of plants allowed. Avid bicyclist? Perhaps you have several bikes and were planning to park them with your car in the garage. Some CC&R’s restrict the amount and types of storage permitted in the garage. Read the CC&R’s or hire an attorney to review them for you and give you the highlights, but don’t wait until after you have already removed contingencies or moved in to discover that there is a rule there that you can’t live with.

2. Unexpected Assessments Can Wipe Out Your Savings.

When buying into a condominium or townhouse, the common areas are maintained by the HOA. This means, the roof, the fences, the landscaping, the garages, the pool, the community room, the mailboxes, lightposts, driveways etc. These items cost money to maintain, repair or replace and the ways HOAs raise money is to assess the homeowners. The seller and the property management company is required to disclose to the buyer if an assessment is imminent. However, that often does not protect the buyer from an assessment that is coming in say 13 months, or within the next two years.

Again, in the package of documents with the CC&Rs, look through them and read the minutes from the HOA meetings and ask for newsletters. Those documents usually will have the red flags to tell you that an assessment may be coming soon. For example – “pool is leaking,” “garage is leaking,” “resident complained of driveway surface,” or “dry rot found in Building A” are notations that should tell you and your agent that it’s time to interview the neighbors and ask if some of these conditions are serious or chronic. If they are, you can bet the property management company will need to take bids and deal with those items and that an assessment is likely coming.

The fewer number of units, the more each homeowner will have to pay for their share of the assessment, which could be many thousands of dollars for something major like a roof replacement. The older the HOA, the more things that will need to be replaced. Don’t be shy about asking tough questions about the HOA’s reserves and the financial health of the association.

3. Updating Appliances or Minor Remodeling May Require Access Other Units.

While you the buyer will have relatively few restrictions about how you decorate the interior of your unit, there are things that could require Architectural Board Review or approval from the HOA board. Again, read the CC&R’s to determine what you have to do to gain approval. If you are thinking that you need a kitchen remodel or want to put in a wet bar for entertaining, you may need to tap into water or gas pipes that run under other units in the building. Something you think is minor, such as upgrading the washer/dryer to a new high efficiency model may require updating the pipes. Read the CC&R’s to determine under what circumstances you can access those shared utilities.

Get A Professional Set of Eyes on Those Documents

Buying real estate in California is a major undertaking and the speed of the transaction can be overwhelming. Buyers who are busy juggling work, getting financing, scheduling inspections and having a life can feel embarrassed that they haven’t had time to read all the documents they receive. Consider engaging an attorney to review the transactional documents, the disclosures and the CC&R’s and discuss the potentially material issues in them.

We have reviewed a number of transactions for buyers, turning around analysis and counseling the principals in a tight timeframe to help buyers and their agents respond timely to contingency removal deadlines. Don’t hesitate to give us a call at 650.327.2900, or visit our website at www.BrewerFirm.com.

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