If you’re thinking of buying a condo, townhouse or subdivision, you should also consider the homeowners association (HOA). This goes beyond the neighbors you’ll be interacting with - the associated documents can give you a thorough understanding of what it’s like to live in the property.
So, before slipping into the community spa, take a dip in the sea of essential HOA documents!
CC&Rs (Covenants, Conditions, and Restrictions): CC&Rs are the documents governing what homeowners can and cannot do within the community. These rules cover a wide range of topics, like architectural guidelines, maintenance responsibilities, and restrictions on certain things like pets and whether a unit can be rented. Violating CC&Rs can result in fines or other penalties.
Bylaws: The HOA's bylaws outline the organization's structure, governance, and procedures. They specify how board members are elected, how meetings are conducted, and the powers and duties of the board. Bylaws also contain information on the assessment of dues and the enforcement of rules.
Articles of Incorporation: These are legal documents filed with the state that establish the HOA as a corporation. They outline the purpose of the association, its powers, and its status as a legal entity. Some small or more informal HOAs may not be incorporated.
Meeting Minutes: HOA meeting minutes document discussions and decisions made by the board of directors. They provide a historical record of the association's activities and are essential for transparency and accountability. A buyer should be sure to get minutes from each meeting from at least twelve months prior.
Insurance Policies: HOAs should carry adequate insurance to protect against various risks, including liability and property damage. This is important to safeguard the association's assets.
Especially important are the documents relating to the financial health and management of the HOA.
Budget: One of the most important financial decisions an HOA makes is the creation of an annual budget. The budget outlines expected income (usually from homeowners' dues) and anticipated expenses (such as maintenance, repairs, and operational costs). The board of directors typically drafts the budget and presents it to homeowners for approval.
Reserve Funds: Reserve funds are set aside for major capital expenditures, like roof replacements, repaving roads, or renovating common facilities. Decisions about how much to allocate to reserves and when to use these funds require careful planning and board approval.
Reserve Study: In California, a reserve study is required every three years. The reserve fund should also be reviewed annually prior to proposing the annual budget.
Special Assessments: If unexpected expenses arise, the HOA may need to levy special assessments on homeowners to cover the costs. This decision usually involves a board vote and the process is outlined in the association's governing documents.
Red Oak would love to help you navigate HOAs and all the possibilities in a community governed by one. Reach out.
