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HOA rules: Check your CC&Rs early to avoid buyer’s remorse

Gina PogolThe Mortgage Reports Contributor

HOA rules: Read them (or weep)

If you fall in love with a home in a homeowners association (HOA), check the HOA rules as soon as you can. There may be deal-breaking provisions in that document. For instance:

  • Many associations ban outdoor smoking
  • They may also tell you what kind of plants you’re allowed to have in your yard
  • It is very common for HOAs to regulate the color you paint your house and other exterior changes

HOAs can limit the number of and types of pets you can have, and whether you can put up a clothesline or even park in your own driveway. And if the regs drive you out, they may prohibit the “for sale” sign in your yard.

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HOAs: good, bad and ugly

HOAs can be good for their members. They monitor your neighbor’s behavior as well as yours, and that can be a positive thing. If the family across the street lets their dogs bark all night, rebuilds auto motors out front, and throws parties every weekend that make it impossible for you to get into your driveway, you don’t have to confront them.

Related: HOA dues can make a condo more spendy than a house

Instead, you can have your HOA enforce the rules and you can return to quietly enjoying your property. HOAs can keep members from harming their neighbors’ property values with visible junk or garbage or bizarre home “improvements.” However, they can also nit-pick what you consider ordinary activities.

Even worse, some HOAs flat-out bully their residents, even to the point of forcing them into foreclosure. You want to avoid these.

Typical HOA rules

Most of the rules should be found in the CC&Rs. But some HOAs list rules in a separate document. They cover:

  • Subletting or renting
  • The exterior, including paint colors or landscaping
  • Other renovations or repairs, like installing solar panels or a satellite dish on the roof
  • The process to change or add rules, which may be burdensome
  • Penalties for breaking rules
  • HOA’s recourse for nonpayment, like fines, liens and foreclosure
  • Number and type of pets allowed
  • Street parking policy
  • Guest policy for shared areas and facilities
  • Attendance for HOA meetings

You’ll also want to ask about pending special assessments you might have to pay. And find out how many the HOA has had in the past.

Related: HOA dues (and don’ts)

How HOAs can force residents into foreclosure

Most homeowners have no idea that their HOA can foreclose for late payment of dues or assessments. When late fees, interest and attorney charges are added to the outstanding balances, they can skyrocket and become unaffordable.

To make things worse, when homeowners attempt to make partial payments, the HOA may refuse to accept them and continue with foreclosure proceedings. In some cases, homeowners had no idea that there was a foreclosure in the works. There are many reports of owners who lost properties over a few hundred dollars.

Related: Buying a condo with an FHA, VA or conventional mortgage

In the worst abuses, insiders on the board have taken advantage. Sometimes, board members have forced a homeowner into foreclosure so they could buy the home themselves at a knock-down price. There are even lawyers advertising that their main business is helping HOAs foreclose and take properties.

That HOAs can threaten foreclosure to collect several thousand dollars in late fees, interest, fines and attorney fees for a delinquency that may total only $300-$600 has led critics to describe the situation as nothing more than a “shakedown racket.”

What you should do before buying

It may not sound fun, but it’s critical that you read the HOA’s covenants, conditions and restrictions (CC&Rs) to see if you and your association are a good fit. Restrictions against holiday decorations or pets may make you think twice if you have a family.

You’ll also want to look at its bylaws and finances. An unhealthy HOA may defer needed maintenance, compromising your property value. In addition, if more than 10 or 15 percent of the residents are behind on their HOA dues, you may have a hard time getting a mortgage. Ditto if the HOA is involved in litigation.

Related: Warrantable and non-warrantable condo rules

You want to see an HOA with plenty of reserves. So it can fund improvements without imposing a special assessment, and ride out emergencies without getting desperate.

Bylaws define the voting rights of HOA members and what actions board members can take without a vote — be cautious if the HOA board has the power to create new rules without input from residents.

You’ll also want to look at the minutes from recent board and general meetings. These can tell you if there are impending assessments or a lot of discord between neighbors.

Beware of boards with attorneys on them if those same attorneys work for the HOA. There is every incentive to jack up costs by adding high attorney fees when a homeowner is in arrears. You can also see if an HOA habitually uses foreclosure or very high fines to keep members in line.

Sooner beats later

Most of the time, you don’t get access to the HOA documents unless you make an offer on the property. But you can ask questions in advance. if you have a motorhome, for instance, find out about parking. Inquire about your dogs and your clothesline before going too far in the process.

Related: Townhomes, condos, co-ops and more (property type affects mortgage approval)

Note that once you are in escrow, most purchase agreements allow you a limited time to review the HOA documents. Once that date passes, you are presumed to have read and approved them. Getting out of a purchase at this point can be tricky and expensive.

Verify your new rate (Sep 25th, 2018)