Stay Involved with your HOA

HOAs can be a great thing, but they can also digress into an ugly beast. Homeowners should never be apathetic about the HOA. Going to meetings and participating in HOA elections can be very important on those occasions where the association has to make tough decisions.

Sometimes homeowners will react in a knee-jerk fashion and call for a strict revision to rules that might be an overreaction that could lead to unnecessary turmoil. Homeowners that do not participate in the process can be left behind unwittingly.

Sometimes an elected HOA president might develop tendencies to overreach his or her authority. Homeowners are wise to vote out these unreasonable people. If things get really out of control there is legal action than can be brought against the HOA and if the problem centers around an individual, that person could find themselves in a great deal of legal trouble if they are found to have abused their power. The HOA is for the benefit of the community and each property owner should have an equal vote in any processes that HOA oversees.

Generally an HOA will be setup with a super-majority requirement for major rules changes such as banning rental properties or something severe like that. It all depends on the HOA's written bylaws. I have seen some require 75% approval and yet others with a simple majority.

When buying a home in a neighborhood with an HOA, always read through the HOA rules, guidelines, and bylaws to make sure you are comfortable with how things are controlled and how rules and regulations are both enforced and changed. 

When living in a single family detached neighborhood, the HOA should have modest regulatory authority. Of course condos have to be more strict since the individual owners of the units own only the space between the walls. The land and building structures are cooperatively owned by every one in the community.

I run into buyers that will not buy a home in an HOA and I feel that is a bit of an overreaction. A well written set of bylaws with limited control for the HOA can lead to higher property values and less of a decline in neighborhood conditions over time. Buyers just need to make the effort to read through the documents and maybe even have an attorney skim through if something looks out of sorts.

HOA's are great... until they're not ;) Due diligence is always the best course of action.

HOA's, CCR&Rs and You

Many clients are reserved about HOAs in the neighborhoods they are seeking homes in. HOA stands for Home Owner's Association. The overwhelming majority of people are at the least, cautious regarding buying in a neighborhood with an HOA and many flat refuse to buy if an HOA is present.

Caution is well advised as the good standing of the HOA is very important, especially in a condo or townhouse development where the responsibility of the HOA is high. For this post today, I am focusing on HOAs in detached home neighborhoods.

An HOA is often utilized to make certain the neighborhood continues to conform to the original specifications the developer created. Often there are common areas the HOA will maintain such as walking paths, parks and sometimes the front yards of the residences. There is of course a fee that is billed to the homeowners monthly, quarterly or annually. Generally the HOA elects a board from the ranks of the homeowners and sometimes the HOA is run a professional management company.

An HOA can be a great asset to a neighborhood as they routinely enforce the CC&Rs that can help preserve the integrity of the neighborhood. CC&R is an acronym for Covenants, Conditions and Restrictions. These are generally deeded and often recorded with the deed and thus run with the land indefinitely. Disbanding an HOA or dramatically changing the way the HOA is managed may occur via a vote of the homeowners. CC&Rs require a significant legal action to remove.

The two go well together. The HOA can enforce the CC&Rs. CC&Rs are much more difficult to remove as they are deeded to the land. However, if no HOA is present, then enforcing the CC&Rs becomes difficult. It is complaint driven and would likely require formal legal action to enforce. Inversely, an HOA without strong CC&Rs can quickly become useless as well. As the homeowners can simply vote away important protections.

I have watched nice neighborhoods decline rapidly due to a weak HOA/CC&R or no HOA at all. The idea of keeping a neighborhood as nice as the day you bought the house over years or even decades is important to many people that intend to live in a home for long term. The fear some buyers have is that the HOA will be run so strict that homeowners lives will be negatively impacted. This can be true sometimes. A client may move into a neighborhood that restricts RVs and Boats or street parking. Perhaps when they buy the home these restrictions are fine, then they have a family and want a boat or end up with teen drivers that can't park their car in the neighborhood, etc. These are things buyers must consider when purchasing a home. Buyer's need to think about the big picture and what their future may hold. Some things are not planned in life, but many are. Buying a house that does not conform to one's future plans is foolish at best.

The bottom line about HOA and CC&Rs is that people who want a neighborhood that is well regulated and keeps homeowners in compliance with the neighborhood plan, should seek out areas with strong CC&Rs and a solid HOA. People who like to have RVs and boats and extra cars and such should avoid HOA regulated neighborhoods.

It's Getting Tough to Buy Condos with FHA or VA

500 Broadway, Vancouver, WA
Condos on the upper floors

Many buyers are interested in a condominium home. There are many advantages to this type of home. The homeowner is only responsible for the interior of the unit and they pay an HOA to manage the grounds, external facilities and common areas. Small modestly built condos can also be less expensive than a comparable home. There are disadvantages as well but once a buyer has decided that a condo is for them, they must be certain that they can finance it.

If the buyer is a veteran looking to use a VA loan or is intent on an FHA loan, they must be certain the condo is approved by HUD (Federal Government, Department of Housing and Urban Development). HUD has stopped approving condos on an individual basis and is requiring the entire complex to be approved. In the Clark County, Washington market I am finding that the overwhelming majority of condos are either expired or not approved at all.

If the condo is approved, the buyer and their agent ought be certain that the approval does not expire before the sale closes. This is paramount should the condo be a short sale. Short sales take much longer to close. Buyers should have at least 6 months and preferably a year of approval left is wise when offering on a short sale condo.

The good news for FHA buyers is that some banks are offering a 95% conventional loan. These loans do not require FHA approval on the condo unit or complex. They will however have some underwriting requirements that could pose problems. For example, most banks are looking for at least 50% owner occupied units in a condo project. These conventional loans require a slightly higher down payment than an FHA loan but offer superior terms regarding mortgage insurance. It is always a good idea for buyers to meet with a mortgage professional prior to home hunting.

When offering on a condo, buyers should be certain that their agent is thorough in vetting any potential issues with financing.

Since I am on the subject of condos, I will touch on HOA issues as well. Condo projects have HOAs that oversee the common areas and buildings. Since the unit owner only owns the space inside, the HOA owns the buildings and land. The HOA is a common ownership of all the unit owners. Essentially condo owners have two things they own. They hold title to the unit (interior space of their unit) solely as an individual and then they hold title to the whole complex property as a partial owner, usually held as tenants in common. They have an equal share with each of the other owners or possibly proportionate to the relative value or size of their unit.

HOAs are required to keep to state standards for financial disclosure and management. Before buyers commit to a purchase on a condo or other property with an HOA, they should be certain to check out the HOAs financial and legal status. There are times when an HOA is involved in litigation. They can be either the plaintiff or the defendant. In either case, financing is nearly impossible to obtain while there is an open litigation or a judgement is in force.

Attached Townhouse in Camas, WA
This is not a condo

Condos should not be confused with other homes in planned unit developments. Many neighborhoods and attached housing projects have an HOA but they are NOT condos. A condo is unique in the ownership as just the space inside the walls. Attached housing with common walls such as a townhouse or row houses are often held in ownership the same as detached housing. The owner owns the structure and the land. Typically the HOA (if present) takes care of keeping the neighborhood consistent by enforcing rules designed to protect its integrity. These HOAs may also provide upkeep and care of other amenities such as a neighborhood park, swimming pool, etc. In these scenarios, the HOA is not responsible for the structure of the buyers home, roof, siding, etc. The dues are likely to be lower than those in a condo. The FHA and VA loans will not require HUD condo project approval on these types of developments.

Buyers should work with an experienced agent when considering a condominium home. They can be a wonderful opportunity for quality living, but they have a few quirks that require thorough care during the purchase process.