Due Diligence When Buying in an HOA

HOA Due Diligence: Navigating Essential Documents for Homebuyers

When buying a home or condominium subject to governance by a homeowner’s association (HOA), there are a few more documents you’ll want to review beyond those found in Schedule II B of your preliminary title report and others found at federal, Tribal, State, or local agencies. HOA’s have their own documents that a thorough read should help assure you that your purchase will be a sound one.

HOA Due Diligence Includes Review of:

1. Articles of Incorporation. Articles of Incorporation are filed with the Secretary of State.
2. Bylaws and Rules and Regulations. Applicable bylaws and rules and regulations and amendments are generally filed with the Secretary of State, or your County Recorder.
3. Covenants, Conditions and Restrictions (CC&Rs). Homeowner’s and condominium associations are generally governed by equitable servitudes. CC&Rs are equitable servitudes. Equitable servitudes are private, contract-based land use rules imposed upon all parcels in a residential or commercial subdivision. Equitable servitudes “run with the land” meaning that, regardless of whose name is on title, any land use restrictions survive a new owner’s conveyance to a successor owner.
4. Budgets and Records. Financial records and governing documents tell the history of the HOA. Financial statements and board of directors’ meeting minutes give you a picture of the financial and governance “health” of the organization. Ask for two or three years of these records so you can review and approve them within the inspection and due diligence period specified in your real estate purchase contract. Look for reserve funds to assure capital maintenance of major systems has been planned to avoid special assessments.
5. Hierarchy of documents. When purchasing in a homeowner’s or condominium association, look for an explicit statement regarding what document controls in the case of conflict between documents. For example, it may be stated that the CC&Rs control over the Articles of Incorporation, which in turn control over the Bylaws.

TC Solutions

Buyers. Use TC Review if you have concerns about how any of the above due diligence items relate to a property you are interested in buying.

Use Timely Contract solutions to avoid common problems of the real estate transaction … and to help you sleep better at night!

This posting is not legal advice. Legal advice is based on specific facts. This information is general in nature.