Navigating HOA and COA Purchases: A Guide to Due Diligence and Red Flags to Watch Out For
Homeowners associations (HOA) and condo owners associations (COA) are legal entities that manage and maintain shared amenities and services in residential communities. HOAs and COAs are responsible for collecting fees and enforcing rules that govern the community. While they can be beneficial for maintaining property values and promoting community harmony, there are potential pitfalls associated with purchasing a home in an association. Due diligence is key to identifying potential problems before making a purchase.
When considering purchasing a home in an HOA/COA, it is crucial to obtain and review essential documents. Here are some of the most critical documents to request:
- CC&Rs - The covenants, conditions, and restrictions (CC&Rs) are the governing documents of the HOA/COA. They outline the rules and regulations that homeowners and residents must follow, as well as the rights and responsibilities of the HOA/COA.
- Financials - Reviewing the financial statements of the HOA/COA is important to determine the financial health of the association. This includes the budget, reserve funds, and any outstanding debts or liabilities.
- Bylaws - The bylaws of the HOA/COA detail how the association operates and governs itself. It covers items such as the election of board members, meetings, voting procedures, and powers and duties of the board.
- Name of management company - Knowing the name of the management company and its reputation can provide insight into the management and maintenance of the community.
- Names and contact information for board members - Contacting board members can provide information on any recent or pending issues within the community, as well as insights into how the board operates.
While there are many benefits to purchasing a home in an HOA/COA, there are potential red flags to watch out for. Here are some of the most common issues to look for:
- Financial problems - If the HOA/COA is experiencing financial difficulties, it could lead to increased fees or assessments, reduced maintenance, or other issues that could negatively impact property values.
- Litigation issues - If the HOA/COA is currently involved in litigation or has a history of frequent legal disputes, it could be a sign of mismanagement or contentious relationships within the community.
- A high number of delinquent owners - If many homeowners are delinquent on their fees or assessments, it could be a sign of financial problems or difficulty enforcing rules and regulations.
- Restrictive covenants - Some HOA/COA CC&Rs can be overly restrictive and limit the use and enjoyment of the property.
- Unreasonable or poorly enforced rules - If the HOA/COA has a history of enforcing unreasonable or inconsistent rules, it could lead to frustration and conflict within the community.
In conclusion, due diligence is crucial when purchasing a home in an HOA/COA. Requesting and reviewing essential documents and identifying red flags can help buyers make informed decisions and avoid costly surprises down the road.