When buying in a neighborhood or planned development (condo or single family home) with a home owners association there are documents and rules and regulations that you must review. Commonly called HOA Docs and CC&R's (covenants, conditions and restrictions) these are the rules that govern the neighborhood and you when you become a home owner in that development. The Docs will cover budgets and expenditures as well as the organizational aspects of the community.
WHY DOES IT MATTER:
This is important for several reasons. First, you should read these carefully. Look for things that restrict your use of the property in any way, then ask yourself can I live with that? Examples would be no RV parking, no overnight street parking, restrictions on colors you can paint your home, Pet restrictions, even rental restrictions - can you rent your home out and under what terms?
COSTS:The big caution here comes into play while you are still a buyer. The documentation mentioned above has a cost associated with it. Producing the vast quantity of paper that typical HOA associations have has a labor and materials cost. Some HOAs' are very reasonable about their fees and charge a nominal fee for copying and labor. Increasingly, however, I am seeing associations turn this task over to outside 3rd party companies. This is when the cost skyrockets. I have seen fees as high as $650 for a 3rd party company to produce the set of documents that you as the buyer must receive prior to completing the purchase of your home.
Here is the catch. Even if you have a smart agent who negotiates that the seller pay these fees upon closing of a successful transaction - these third party companies want their fees
up front. Guess where the money comes from? You - the buyers - deposit. If for some reason you decide not to complete the purchase and cancel the transaction you will be chasing the seller (who in many cases is now angry) for these funds. Beware when entering into these transactions of the paperwork that says you agree to have these fees deducted from your deposit and that they are non refundable.
The reality is you, as the buyer, started the transaction and did place an offer but just know that if you fail to complete the sale those funds are likely lost forever. Be sure to communicate clearly with your escrow officer about what those charges are and when he or she will be ordering them.
The State of California Has stepped in and passed rules on these fees. Now the seller must pay these fees. The buyer only pays them at the close of escrow IF the buyer and seller have negotiated that. This has saved many problems since it was implemented. It has created one new problem though in that sellers must get their funds to escrow in a timely fashion so that docs are ordered and delivered to you, the buyer, in time to meet other loan and inspection deadlines. This is something your Real Estate Agent should be on top of for you.
For more information on the Escrow process please contact us.
Representing only buyers, I would never allow my clients' deposits to be used to pay for HOA documents. My contracts state clearly that the seller provide them to the buyer and that the buyer's approval of the content is a contingency to the contract.
ReplyDeleteHi Michael: I agree.. It is not a good thing but I wanted to call out that it is starting to happen. Especially in short sales where the sellers have no money but the buyer is telling us they want the property. My Broker just came up with a disclosure form to cover this scenario as it is happening more and more in our Market in So. California. Thanks for Reading - Michael Layton
Buyers must also beware that it is becoming more common for HOA's to place liens on properties for unpaid dues, and they are actually increasingly moving to foreclosure to collect!
ReplyDeleteExactly - I am seeing HOA's in my area place things into collection once they are 3 months behind. Gone are the days of them waiting a year to collect. I warn all my sellers too.
ReplyDeleteThanks for reading. Michael