Homeowners Associations – What to Look For
When purchasing a condominium, townhome, or other property that is subject to a homeowners association, it is important to know what you are buying into aside from the property itself. Homeowners associations may have restrictions on uses that could potentially run contrary to what you expect as far as what you want to do with the property. Even worse, buying into a financially unsound homeowners association may cost you much more than what was expected in the long-run. As a result, it’s important to know what you are buying into when purchasing a property subject to a homeowners association.
During the escrow process, sellers are required to disclose a variety of documents relating to the governing homeowners association. The following are 4 tips on what to look for in those documents.
Tip #1 – Read the Homeowners Association’s Covenants, Codes, and Restrictions
The Covenants, Codes, and Restrictions, often referred to as the CC&Rs, contain the rules that govern the use of the properties that are subject to the homeowners association. They often contain restrictions on how a property may be used. Two common restrictions that are important to consider are restrictions on pets and rights to rent units:
• Restrictions on Pets – Many homeowners associations restrict the size and/or number of pets that may be kept in a unit. For purchasers who have pets, this is generally an extremely important consideration. However, if the CC&Rs contain a restriction against the type of pet that is already owned by a purchaser, homeowners associations are often willing to make specific exceptions to the rule for pets that are owned prior to a purchase. In such an event, the purchaser or purchaser’s agent should directly contact the property manager or board member of the homeowners association to request an exemption from the restriction prior to lifting the HOA contingency.
• Restrictions against Renting – Some homeowners associations restrict the owners’ rights to rent their units. Rental restrictions recently became so common and cumbersome that Governor Jerry Brown signed Senate Bill 150, enacting California Civil Code section 1360.2, which prohibits rental restrictions in any CC&Rs or amendments to CC&Rs after January 1, 2012. Of course, most rental restrictions that currently exist were enacted prior to January 1, 2012, so purchasers should keep an eye out for any such provisions.
It is important to know that the homeowners association has a “rainy day fund” available in case of emergencies. This is called the homeowners association’s “reserve fund.” Homeowners associations are required to conduct a Reserve Study at least once every three years. Many homeowners associations do not comply with that requirement. Nonetheless, the homeowners association should provide sufficient information to allow buyers to identify the amount of reserves and how much of the annual budget is directed toward maintaining and/or increasing that reserve. If a reserve study has not been conducted recently, purchasers should also find out from the property manager or board of directors whether the homeowners association is expecting any significant upcoming expenditures, whether the reserve fund is sufficient to cover those expenses, and whether there are any upcoming “special assessments” expected.
Homeowners associations are typically required to hold at least one meeting every year. The issues that are discussed at those meetings are reflected in the meeting minutes, which should also be produced during escrow. It is important to review these documents not only to know what issues the homeowners association faces, but also to get a general sense of how the association is run and managed. The minutes will reveal how detailed the association is with maintaining the common grounds, how intrusive they may or may not be into the lives of the property owners, and how friendly the association is with its members. These are important things to note when identifying a property that may potentially be home for many years.
Tip #4 – Know the Monthly Homeowners Association Fee
This is likely the most obvious of our tips. Make sure you know the monthly dues associated with the homeowners fees. If you are unable to pay the monthly fee, homeowners associations have the power to place liens against properties and even force a foreclosure. Depending on the common amenities that are provided by the homeowners association, the monthly fees typically range from $200 to $800.
If you would like to further discuss how Esquire Real Estate Brokerage, Inc. can help you in the Los Angeles real estate market, feel free to give us a call at 213-973-9439 or send us an email at email@example.com.