With housing inventory lower than before, more people are looking at condominiums (“condo”) and townhomes when shopping for a new home. Most condos and townhomes are part of a homeowners’ association (“HOA”). HOAs are organizations in a subdivision, planned community or condo that make and enforce rules for their properties. Here are seven facts to help you understand HOAs better.

  1. Membership is mandatory. When purchasing a home tied to a HOA, you are obligated to be a member of that HOA. You are also responsible to pay monthly or annual HOA fees for the upkeep of common areas and building maintenance costs. Common areas may include parks, tennis courts, elevators or swimming pools.
  2. Learn about the CC&R. HOAs have guidelines that all residents must follow. These guidelines are called covenants, conditions and restrictions (“CC&Rs”). It helps to pay particular attention to rules regarding fines, especially whether the HOA can foreclose on your property for nonpayment of dues or fines resulting from CC&R violations. Some HOAs may impose penalties for breaking HOA rules, and may require a member to either reverse the violation by action or pay a fine.
  3. Fees will differ in each community. Each HOA is different, so asking your HOA the following questions will give you an idea of the fees in your community:
    • How are HOA fee increases set?
    • How often do increases occur, and by how much have they been raised each year?
    • Is it possible to see a printed history of HOA dues each year for the last 10 years?
    • How large is the HOA’s reserve fund?
    • What do monthly dues cover?
  4. Look at minutes from the last HOA meeting. HOA meeting notes will go over current and past conflicts of the property, what processes are used to resolve these conflicts and if the HOA has ever sued anyone.
  5. Find out the catastrophe insurance the HOA has on the building. This is important if the home located in an area prone to floods, earthquakes, blizzards, fires, tornadoes, hurricanes or any potential type of natural disaster.
  6. Consider the impact of HOA fees on your financing. Be sure to know your HOA fees when applying for financing.
  7. Most HOA are incorporated and are subject to state laws. Each HOA will have a board of directors that are elected to enforce and oversee the HOA governing documents, which are governed by state law.