If you’re considering buying a home in a homeowners’ association, there are several important factors you’ll need to pay attention to as you complete the process. Buyers should keep in mind that low HOA fees might leave the HOA with insufficient reserve funds for emergencies, which would require homeowners to pay much more upfront to complete repairs than they would have if the fees were higher from the beginning. Additionally, a buyer might encounter surprise fees when closing a purchase, oftentimes as the result of a clerical error on the part of the closing attorney or unpaid fees left over from the home’s previous owner. It’s essential for HOA board members and prospective homeowners to be aware of both the inherent risks associated with low HOA fees and the proper process for finalizing a home purchase.
Low HOA Fees
When buyers look at condos or homes in a HOA, their first question is often how much the association fees are. For many buyers, low HOA fees are attractive. In newly built or converted condos, fees can be kept relatively low because newer materials and systems can be cheaply maintained. An association may be able to defer dealing with costs for replacement items like roofs, windows, and painting and keep fees artificially low. HOAs defer funding long-term maintenance at their own peril, as collecting prudent reserve funding during this time will make funding reserves manageable for all homeowners. Amassing sufficient reserve funds from the beginning gives your HOA plenty of time to build a nest egg for use on repairs, which will only become more expensive as buildings age.
Maintenance costs on properties will continue to rise. Increases in costs for roofing, windows, and other maintenance over the years will require HOA fees to increase. The idea that HOA costs can remain low forever is a delusion. Many association boards are adamant about keeping HOA fees low because they feel this adds value to homes. Contrary to popular opinion, low HOA fees should be a red flag to buyers (especially when coupled with underfunded reserves). Without adequate reserves, HOA owners will have to write checks for significant amounts with little warning. Then, instead of costing an extra $10 or $20 a month, it costs potentially thousands of dollars right away. Even after requiring additional funds from homeowners to complete repairs, an HOA’s fees may still need to jump by 15% or more to rebuild reserves.
Depending on special assessments to fund repairs will cost the HOA (and homeowners) more in the long run. The board has to give notice to owners and vote for a special assessment, often resulting in added expenditure of both time and money. If the repair is urgent, the association will likely need to move quickly with the repair while working to authorize and collect the special assessment needed to fund the repair.
Buyers, beware—low HOA fees are not always what they seem. Buyers should inquire about scheduled maintenance and an association’s history of special assessments. A little due diligence can reveal the financial strength and beliefs of the HOA. Assess both the association maintenance fee and association maintenance plan for the condo or home you’re considering.
The bottom line is that a low HOA fee won’t last forever. Ask questions, review documents and assess the situation before you opt in.
Closing a Purchase
When a homeowner purchases a home that is a part of a COA, HOA, or POA, there are generally fees that must be paid out to the community before closing the purchase. In order to find out what fees are due at closing; it is the responsibility of the closing attorney to request a closing letter on that property prior to the closing date.
At the time a property is sold, any balance belonging to the seller must be paid. Some communities also require the buyer to pay future assessments at the time of closing as well as any applicable initiation fees. In most cases, this process runs smoothly, with the closing attorney requesting a closing statement in a timely manner and the Board of Directors (BOD) or your HOA Management Company completing and submitting the letter prior to the closing date. Closing checks are then submitted as instructed on the closing letter, and the association is up to date with all necessary monies and information. However, sometimes one or more of these steps are missed, and it becomes the HOA board or HOA management company’s responsibility to remedy the problem.
The first step to collecting the association fees, as well as finding the new buyer’s information, is to determine whether a closing letter was ever requested by the closing attorney. Sometimes it is as simple as contacting the closing attorney and letting them know the closing checks have not been received. Many times, they will resubmit the payments and everything can be cleared up easily. If a closing letter was never requested and the closing took place, a little more digging has to be done to solve the problem.
If a new homeowner has contacted the HOA management company or BOD, the first thing to do is request a copy of their HUD statement. This statement will show proof of ownership for the new owner and will also list the contact information for the closing attorney responsible for collecting the closing fees. Typically, it is best to go ahead and complete a closing letter for the property and submit it to that closing attorney with a deadline as to when the checks need to be received. Because the closing attorney will be held responsible for collecting these fees, they will generally be easy to work with submit these checks quickly.
If you can’t collect fees from the closing attorney, the full amount due on the account—including anything owed by the seller—becomes the responsibility of the new buyer to pay. The buyer is then left to either pay the amounts themselves or contact the closing attorney to dispute the charges. This is why it is important for buyers, real estate agents, and the closing attorneys to understand the proper way to handle closing requests for properties within a homeowner’s association.
Consult with your HOA Management Company for more information regarding the sale and closing of a home in your HOA. If you are looking for the right management company reach out to us here at JellyBird HOA Management.
