The History of Homeowners Associations (HOAs)
Initially HOAs where established to dictate which people could live in which neighborhoods. Nowadays, those HOA rules would be unenforceable do to fair housing regulations. In the 1960’s, sudden growth, more residential development, rising construction costs, and less available land contributed to the need for planned communities. With the rise of planned communities, the purpose of CC&Rs and Bylaws evolved from enabling discrimination to almost entirely economic matters.
The Benefits of An HOA
HOAs provide benefits to local governments, developers and homeowners.
Local governments like planned communities because they save them money. A planned community shifts the burden of the costs, both short term and long term, for streets, parks, common areas, etc., onto the homeowners and away from the local government or developer. HOAs also help keep properties maintained and clean ensuring higher property values, which in turn increases property taxes.
Homeowners also benefit from HOAs. Homes and yards within the neighborhood remains clean and maintained. Some HOAs also give owners access to well-kept common areas such as pools, parks, and trails. Another benefit is that owners can join the HOA board or attend meetings and help to shape their neighborhood.
Understanding The HOA Documents
After you go under contract on a home which is part of a homeowners association, you will have the opportunity to review the HOA Documents. In the standard Colorado Real Estate Contract to Buy and Sell Real Estate, there are two deadlines that pertain to the HOA documents.
- Association Documents Deadline – This is the deadline that the Seller must provide the Buyer a copy of Association Documents.
- Association Documents Termination Deadline – This deadline gives the Buyer an opportunity to terminate the contract. Buyer has the right to terminate based on any unsatisfactory provision in any of the Association Documents, in Buyer’s sole subjective discretion.
The contract specifies what documents the Seller is required to get for the buyer to review:
CC&R's (Covenants, Conditions & Restrictions)
What the contract says: ‘All Association declarations, articles of incorporation, bylaws, articles of organization, operating agreements, rules and regulations, party wall agreements and the Association’s responsible governance policies.’
While you should decide which, if any of these documents are important to you, most buyers are particularly interested in rules and regulations. The rules and regulations might tell you what type of fence you can have, if RV’s are allowed to be parked in the neighborhood, and maybe even what color you can paint your house. The CC&R’s will also tell you which areas the HOA is responsible to maintain and/or insure – this is especially important in a townhome or condominium community.
Minutes of The Meetings
The Board Meeting Minutes can be very enlightening and will tell you more about how the HOA operates – do they address concerns from the residents and how? What projects and improvements are they working on or planning? How do they deal with violations of the rules and are fines levied? Are any special assessments needed or planned? Are they discussing changing the HOA fees? Are they experiencing any financial difficulties?
List of all Association insurance policies
Making sure that the HOA has current insurance is important – especially if you are buying a condominium, townhome, patio home, or any home with a shared wall. You need to understand what your HOA covers and what insurance you need to purchase.
A list of the Association’s assessments
Find out if there are any ongoing or upcoming regular or special assessments. You want to know about them, because you will be responsible to pay for them.
The HOAs most recent financial documents
While you may not be an accountant, you don’t want to skip the financial documents. The financial documents will show you how much they’re spending and if they have money in the reserve account for improvements and repairs. You want to feel comfortable that the HOA is fiscally responsible.
Any Construction Defect Action
If there is a construction defect in any improvements or grounds – you will want to know about it.
Summing Up What You Need To Know About Homeowner Associations
If you are buying a home in the Denver area with an HOA, be sure to take advantage of your opportunity to review the HOA documents. If there is anything in the HOA documents that you don’t understand or have questions about, be sure to ask me. If I don’t know the answer, I typically know where to find it.