If you are planning to buy a condo, or a house in Lake Forest, Mission Viejo, Rancho Santa Margarita, or other South Orange County area, there is a good chance that you will be buying in to a home owners’ association (HOA). If that is the case, make sure you read over all the HOA documents soon after you receive them. These are usually provided to you during the escrow process, and you will normally have 5 days after receiving these to either approve them, or cancel the purchase and get your money back.
What should you look at, or what should you look for?
Start with the budget. This will show you the items that are expected to be paid each month by your dues. Some budget items can be expected to go up almost every year – like costs for electricity, water, utilities, gasoline, insurance, and most labor. Also, look at the year-to-date actual financial statements to see how they compare to the budget. Have there been unexpected or substantially over-budget expenses? Is the income (from dues) under the budgeted amount? If there have been a lot of foreclosures in the association, the unpaid dues from those homes will have to be written off, and the shortfall will have to be made up by an increase to the next year’s dues budget. By law, in California, the HOA dues may be increased by the board of directors by up to 20% without a vote of the homeowners. If a 20% increase is not enough to cover any shortfall, a “special assessment” of up to 5% of the annual budget may be declared by a vote of the board of directors. Most associations publish their new budgets in November for the following calendar year, and the new dues assessments go into effect in January.
Review the Rules. Most HOAs have rules that address many areas of your life. Putting a basketball hoop on your garage, or a portable one in the driveway, may be restricted. Do you have a boat or RV? Many HOAs require that they not be visible from any other property or from the street, or that you may only park your RV in front of your house for the time it takes to load or unload it after a trip. Also, if you drive a commercial vehicle, know that there may be restrictions on keeping that in your driveway. Do you work from home? Some associations will not allow any kind of manufacturing or retail types of businesses, or will restrict the hours that you can operate. What kind of pets do you have? Chickens, ducks and pot-bellied pigs are often outlawed, and some associations put a weight limit on the size of dogs that are allowed. Read over the rules and make sure there aren’t any that you can’t live with!
Architectural Guidelines. Before you plan that room addition, front porch, patio cover, or major remodel to your new home, find out what is likely to be approved by the architectural committee. If you want to add a 2nd story, or change the exterior look of the home, find out before you buy that it will be allowed!
Meeting Minutes. The minutes from the Board of Directors’ meetings will tell you what is going on in the Association. Much of the time, the minutes are quite routine and boring, but check to see what issues are coming up at board meetings. Are neighbors fighting about something? Is the association failing to enforce the rules? Are they anticipating discontinuing any services, or upgrading any of the commonly owned facilities? Are there any lawsuits threatening the Association?
Buying a home that is part of an association means that you are buying ownership in that association. Do your homework – You need to know what you are buying!