What home buyers don’t know about the HOA can hurt them
By Deborah Goonan, Independent American Communities
Eight years ago, when my husband and I were house hunting in Florida, our needs, we thought, were simple: 3 bedrooms, 2 bathrooms, all on one level (very common in Florida), and less than 20 years old.
Having owned two fixer-upper homes in our lifetimes, we did not want to go through the hassles of a major renovation again. The Sunshine State had many recently constructed homes at the time, so there were plenty of enticing choices. Our real estate agent drove us through at least a dozen different neighborhoods, and we looked at a few dozen homes, including some townhouses, but mostly single family detached homes.
Every one them was governed by a homeowners’ association.
The HOA was a foreign concept to both of us. There were no HOAs with our previous two homes. We had a vague idea that HOAs come with certain rules and restrictions, so we asked for a copy of the “rules” for the home we ultimately decided to buy.
At the time, Florida had weak to non-existent sale disclosure requirements for homes located in association-governed communities. (The State has since modestly increased disclosure requirements) I expected to get a few pages of rules explaining aesthetic standards for our future home. I was a bit skeptical about those rules, but had been assured that the HOA was no big deal.
We had a 14-day due diligence period, during which time several types of home inspections were to take place, and the rules would be provided for us to review.
It took more than 10 days for the seller to provide us with a copy of the governing documents. Of course, at the time, I had no idea that these were called governing documents! We were shocked to receive a stack of papers in a three-ring binder, roughly 100 pages of legalese, third or fourth generation photocopies. We were told we could “borrow” this binder for a few days to review the document, and that we would receive our own copy at the closing.
That left very little time to thoroughly review the Covenants, Conditions, and Restrictions (CC&Rs). Sifting through the legalese in the absence of a table of contents, I was able to find the section that listed various restrictions and obligations of homeowners.
Paint colors, roof shingle replacements, landscape modifications, and more, were subject to approval by an HOA committee. No swimming or boating in the “lakes,” which I later learned were nothing more than storm water retention ponds. There were restrictions against signs, lawn ornaments, fixing cars in the driveway or garage, parking boats and RVs, and on and on. The tiny yard had to have at least 6 trees, 4 of them hardwood trees – so if a tree had to be removed or was taken out in a storm, the homeowner would have to replace it.
I remember thinking, although annoying, we could live with these “rules” and restrictions. Little did we realize that complying with the “rules” was only one disadvantage to HOA living.
We briefly reviewed the section that described the expenses covered by the assessments: 24/7 gated security, home security service, and maintenance of common areas. We assumed that included a small park, and various ponds with fountains. At the time, we did not realize that all the streets and street lights were also owned and maintained by the HOA. That was a fact learned after we closed on the sale.
We skimmed over the remaining sections of the 100+ page document, seeing nothing alarming that would stop us from going through with the sale.
Our impressions at the time were as follows:
- The restrictions and covenants would help ensure that all of our neighbors would keep their properties looking attractive. We would be joining thousands of reasonable, like-minded homeowners, who would take good care of their homes.
- The neighborhood appeared to be well-managed and maintained. In return for our assessments, the HOA would take good care of the grounds to keep them looking great.
- Management appeared to be competent and responsive to homeowners. At least that is what the neighbors told us at the time.
- We had done our due diligence, and had reviewed all relevant HOA documentation.
It turned out we had the wrong impression.
State law requirements for disclosure are inadequate
But before I elaborate on what happened after we purchased our home, today I want to share an excellent column written by Donie Vanitzian of the L.A. Times.
As you will see, it is fairly common for home buyers to be rushed into a purchase without all the necessary details. In general, home buyers do not know what they need to know about HOAs, and the real estate industry often fails to provide all relevant disclosure.
Vanitzian writes about California law, and the reader should recognize that each state, the District of Columbia, and each U.S. Territory has its own specific laws governing required HOA disclosures. California requires more disclosure than most states.
However, Vanitzian suggests that buyers need to dig deeper than minimum disclosure requirements to protect their financial interests when purchasing a home governed by an HOA.
Buying into a homeowners association is a lot more complicated than just making an offer on a property
Donie Vanitzian, Los Angeles Times
September 2, 2017 6:00 AM
QUESTION: We recently acquired a condo, but even with a 60-day escrow, we felt the purchase process was too fast. We wanted to take our time to read and review everything before signing, but that didn’t happen. The seller imposed time restrictions on all of our replies and if we did not respond by those deadlines, the “deal was off.” Once in escrow, we had to agree to pay extra or forfeit the sale if we were the cause of a delay in closing.
Later during escrow, we received an overwhelming stack of documents from the homeowners association. It was not possible to perform our own due diligence, let alone obtain legal counsel to review the morass before the closing deadline. Two months after we moved in, we began reading everything we signed. The association had an owners-only website for access to its governing documents. Because we were “buyers” at the time of sale, we did not have access to the website.
Once we compared the website’s governing documents, we saw they differed from what the escrow company provided us. We also learned that the seller voted to approve a $10,000 special assessment becoming effective a year after we closed escrow. The result of that vote was not tallied until two months after escrow closed.
We feel we were taken advantage of. What can we do? What could we have done differently?
ANSWER: You were not “taken advantage of.” You had inferior bargaining skills compared to your counterpart. The time to read everything is always before you sign.
When buying into a common interest development, you are buying more than just the property: You are getting all of the restrictions and liabilities that come with it. You probably wouldn’t buy a house without walking through it or conducting a professional inspection, but too many buyers fail to properly review governing documents describing limitations on use prior to making an offer.
Bottom line: The buyer in California was stuck with an unexpected $10,000 expense within a few months after closing on the sale, despite pre-sale disclosure requirements enacted to protect housing consumers.
Here’s what happened after the sale
And, from personal experience, I can say with confidence that the real estate industry routinely withholds many relevant facts about the HOA that comes with a home purchase. After all, state disclosure laws are crafted with significant input from attorneys that work for HOAs, home builders, and land developers. The folks who sell you property in an association governed, common interest development do not want you to know too much before you sign all the legal papers and they hand over the keys.
In our case, here is what happened after we purchased our Florida home:
- About a week after closing, the seller’s agent delivered a copy of the governing documents. This copy did not match the copy we had “borrowed” previous to our binding sale agreement. For example, this “official” set of rules included new rules against garage sales and specific restrictions against installation of back yard fences. There was also another 20 or so pages of architectural restrictions for new construction, including home or pool additions.
- Within a few months after we moved in, the HOA circulated a newsletter announcing their intent to end the HOA’s contract with the provider of our home security alarm system. Our assessments were reduced by about $20 per month to compensate, but it cost us nearly $35 to contract with our own security system provider.
- Within a few months, several nearby homes became foreclosure Zombies with overgrown lawns and vegetation, as well as moldy driveways. The HOA eventually decided to mow these lawns using HOA funds, and placed liens on the properties. It took several years for the homes to sell to new owners.
- Within one year, the HOA started working with new landscape contractors. Service levels declined, and the common lawn behind our back yard was only cut a few times during the growing season, rather than weekly.
- Also within one year, water levels dropped drastically in the retention pond adjacent to our home. At the same time, maintenance was minimal to nonexistent. We and our neighbors made multiple calls and emails to the manager of the community, with no response.
- We later learned that the change in contractors coincided with turnover of the association from the developer to the homeowners. Prior to purchase, it had never occurred to us that a developer would control an entire neighborhood.
- Several homeowners then attended some board meetings, expressing their concerns, and asking the HOA board to take care of the landscape and water management pond issues. It took nearly two years of persistent effort and contentious board meetings for the HOA to address some of the most pressing concerns.
So, as you can see, a homeowner in any association-governed community can face unpleasant surprises, financial liabilities, and bitter disappointment with services – or worse – based upon a myriad of facts and circumstances that are not disclosed prior to purchase.
Of course, eight years later, after closely following the industry and researching and studying housing policy issues, I know a lot more than the typical home buyer or homeowner, and I pass along that knowledge here on this website.
HOAs are even less transparent than they were 10 years ago
One final point. To make matters even worse, I am noticing that most HOAs now password protect their websites, hiding access to governing documents and other pre-sale due diligence documents behind a firewall. Many HOAs, especially professionally managed associations, want to charge fees to buyers for access to disclosure packets. Those fees can amount to hundreds or even thousands of dollars, depending on the size and complexity of the planned community.
Do these fees serve as a deterrent to proper due diligence? Maybe.
In my opinion, concealing access to governing documents, meeting minutes, financial reports, and other official records of the HOA also prevents the media and housing consumers from learning basic facts about that association. At the same time, charging fees for information generates substantial additional revenue for management companies.
All in all, this is bad news for housing consumers.