Navigating the home-buying process can be daunting, especially when dealing with HOA-governed properties. One critical aspect that potential buyers must familiarize themselves with is the HOA disclosure documents. These documents provide vital information about the HOA and the property, helping buyers make informed decisions. Understanding what these documents entail and their significance is crucial for prospective homeowners.
In this article:
What are HOA Disclosure Documents?
HOA disclosure documents are a collection of papers that outline the rules, regulations, financial health, and operational procedures of a homeowners association. These documents inform potential buyers about the community they are considering joining. They outline any obligations they will assume as members of the HOA.
The disclosure documents cover everything from maintenance responsibilities to financial commitments. This ensures transparency and helps buyers avoid unpleasant surprises after purchase.
The Importance of HOA Disclosure Documents
HOA disclosure documents are essential for several reasons. Firstly, they provide a comprehensive overview of the HOA’s governance and financial status, which can significantly impact property values and future expenses. Homeowners can also review these documents and gauge the financial health of the association, allowing them to decide if they wish to continue with the purchase.
Secondly, these documents reveal the community’s rules and regulations. Homeowners must abide by these rules, and knowing what they are can affect their daily lives. Associations are known for rules — many of them restrictive. If a potential buyer disagrees with the rules, they can choose to change their minds about the investment.
Lastly, understanding the HOA’s policies on assessments, insurance, and potential litigation helps buyers assess risks and make well-informed decisions. Potential buyers can think twice about buying into the community if an HOA has a history of legal issues or disputes.
What is Included in the HOA Disclosure Documents?
The closing documents for an HOA-governed property typically include a wide range of information. They can vary from one association to another. However, here’s a breakdown of the most common key components.
1. CC&Rs
The Declaration of Covenants, Conditions, and Restrictions (CC&Rs) is the governing document that outlines the rules for the community. It details what homeowners can and cannot do with their property and typically includes the rights and obligations of both the homeowners and the HOA.
2. Bylaws
Bylaws dictate how the HOA operates and governs itself. They include information on the election of board members, the frequency of meetings, and voting rights. Potential buyers can use this information to understand how the association runs.
3. Rules and Regulations
These documents specify the day-to-day rules homeowners must follow, such as noise restrictions, parking policies, and pet regulations. They usually expound on the CC&Rs or contain more detailed information.
4. Budget
The HOA’s budget provides a financial blueprint for the year. It details the expected income from dues and expenses for maintenance, repairs, and other community needs. Reviewing the budget helps buyers understand how the HOA will utilize their fees.
5. Financial Statements
Financial statements offer a snapshot of the HOA’s financial health, including its assets, liabilities, income, and expenses. These documents are crucial for assessing whether the HOA is financially stable and capable of managing the community’s needs. A poor HOA’s financial health can signal large special assessments in the future, which might scare away potential buyers.
6. Reserve Study
A reserve study evaluates the HOA’s reserve fund, which is set aside for major repairs and replacements of community assets. A well-funded reserve indicates the HOA’s ability to handle future capital expenditures without imposing significant special assessments on homeowners.
7. Fee History and Schedule
This document details past dues and provides a schedule of planned assessments. It helps buyers understand their potential financial obligations and any upcoming costs.
8. Insurance Coverage
Understanding the HOA’s insurance policies and any historical claims is crucial. It ensures the community has adequate coverage for common areas and potential liabilities, protecting homeowners from unexpected expenses.
9. Litigation History
Litigation history and information on pending lawsuits provide insight into potential legal issues that may affect the community. Ongoing legal battles can lead to significant financial liabilities and impact the community’s appeal.
10. Enforcement Policy
This document outlines any past violations by homeowners and the HOA’s approach to enforcing rules. It gives buyers an idea of how strictly the HOA adheres to its rules and the potential for conflicts.
Who is Responsible for Providing HOA Disclosure Documents?
The seller typically provides HOA disclosure documents. However, the HOA or the management company may assist in preparing and delivering these documents. Considering the importance of disclosure documents, buyers should always ask for a copy before finalizing a purchase. This will help ensure the protection of the buyer’s interests.
In some states, the law mandates that these documents be provided within a specific timeframe. Section 207.003 of the Texas Property Code, for instance, requires HOAs to provide disclosure documents no later than the 10th day after receipt of a written request. While buyers should ask for disclosure documents, sellers should do their part and ensure they provide them within a reasonable timeframe.
How Much are HOA Disclosure Fees? Who Pays Them?
HOA disclosure fees vary depending on the association and the state. These fees cover the cost of preparing and distributing the documents. Typically, the seller pays the disclosure fees, but parties can negotiate the payment as part of the sales contract. Both parties must clarify who will bear these costs to avoid any surprises at closing.
Keep in mind that some states limit the amount an HOA can charge for its disclosure fee. In Arizona, for instance, Section 33-1806 caps this fee at $400. However, an HOA may charge an additional fee of up to $100 for expedited requests. In addition to state laws, an association’s governing documents may also contain limitations.
A Decision-Making Tool
HOA disclosure documents give buyers a glimpse of what it is like to reside within the community. They provide essential insights into how the HOA operates, the community’s rules, the association’s financial health, and any potential risks involved. Potential buyers should thoroughly review these documents so they can make informed decisions.
Elite Management Services provides HOA management services to homeowners associations and condominiums, including help with disclosure documents. Call us today at (855) 238-8488 or contact us online to learn more!
RELATED ARTICLES:
- Federal Laws On HOAs: Applying It To Your Community
- HOA Financial Statements: A Guide To An HOA’s Financial Records
- HOA Violation Enforcement: How Should The HOA Enforce Rules
