It’s become an increasingly common scenario that the American home owner will be expected to pay Home Owner Association (HOA) fees ranging from ten or twenty bucks a month up to several hundred or more. In some cases, especially in certain ritzy neighborhoods, you could find yourself ponying up the equivalent of a new car payment each month for the privilege of living within a particular community. At Empowered Investor Network, we’re not against HOA fees entirely, but do advise that you know exactly what you’re getting into (and what you’re getting in return for your dues) when you sign on the dotted line.
How It Works
In the beginning, a developer decides he wants to build a subdivision, so he creates a legal entity, usually a corporation, which is known as a homeowner’s association. He devises an initial set of rules and regulations that anyone must follow if they decide to buy a property in the neighborhood. Normally there is a president, vice-president, and assorted other officers who hold regular meetings and insure that the rules are being followed. Usually after a certain number of homes have been sold, the developer eases himself out of the association, transferring ownership completely to the subdivision’s home owners.
The thing to keep in mind about an HOA is that if you want to buy a house within such a community, you MUST join the HOA. There are no exceptions. Further more, you must obey the particular rules set out for the community or risk being fined, or even having your property foreclosed upon by the HOA in extreme circumstances. If you think this sounds like something less than the full property rights guaranteed us in the United States Constitution, you’re not alone. The best practice is to read the HOA contract thoroughly and make sure you understand and agree with exactly what is required of you before going forward with the home purchase.
HOA rules are famous for their insistence on conformity and keeping their community in nice, neat little homogenous rows. Are you a big fan of a certain NFL football team? Take heed. If your pigskin heroes make it to the Super Bowl and you want to show a little team spirit by sticking a temporary flag in your front yard, there’s a good chance HOA rules could prevent it.
The Good
We’re not here to claim that every single HOA sits at Satan’s right hand. In theory – and in reality in some places – the fees are a fairly innocuous presence that do contribute to the overall upkeep of the neighborhood. From QuickenLoans.com, we have a list of costs that are traditionally covered by your HOA payments:
City Services– Including services such as trash removal, water and sewage.
Insurance– This only includes insurance for damage of the outside of the building and the property around it. You still need an individual insurance policy to cover everything inside of the condo.
Lawn Care– This includes snow removal, gardening and general lawn maintenance.
Pest Control– Most HOAs schedule a monthly inspection from a pest control company in order to avoid pest infestation.
Maintenance and Repairs to the Outside of the Building– This includes things such as roof leaks, exterior painting, driveway pavement repairs, etc. It also covers the costs of gym or pool maintenance, if applicable.
Doesn’t sound terribly onerous does it? Actually, kind of nice to not have to worry about these types of things that degrade the overall home value in the subdivision when left unattended. Sometimes fees go to build and maintain common facilities like swimming pools, basketball courts, or golf courses.
The Bad
The bad is when a home owners association goes power mad and becomes a band of little despots who live for nothing more than the opportunity to fine old man Jones because he waited until the grass in his front yard was three inches high before cutting it. After all, HOA rules dictate grass must never be higher than 2.5 inches. See where the potential for trouble comes in? HOA’s legally can and do levy fines as proscribed in the bylaws that are every bit as enforceable as if you received a speeding citation from a member of the local police department.
The Ugly
What happens if you decide the infraction you’ve been fined for is silly and you don’t want to pay it? Be careful. Be very, very careful. There have been cases where fines were allowed to mount into the thousands and tens of thousands of dollars until a vengeful HOA board placed a lien on the property and eventually foreclosed on the basis of unpaid fines. Don’t laugh. It can happen. It HAS happened. The message here is to take the prospect of joining a home owners association quite seriously and be absolutely sure you can live with the rules. If not, keep on searching and don’t even think about buying in that neighborhood.
Empowered Investor Network’s Jason Hartman doesn’t mind HOA fees if they are simple, understandable, and priced no more than $40 monthly.
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