Buyers considering a townhouse, condo or a single-family home in a planned development have to consider an issue not every would-be homeowner has to weigh — membership in the development’s homeowners association.
HOAs have responsibilities that can go well beyond simple property maintenance, according to experts — and they can have a lot of power.
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Association boards, which are elected by residents, propose and manage the operating budget, interpret bylaws, suggest regulations, and hire and supervise staff. While their decisions are subject to a member vote, the boards effectively manage most aspects of the community. They also do its dirty work; enforcing sometimes unpopular rules and mediating disputes among unit owners.
Laws vary from state to state, but boards always have the power to make and enforce the community’s rules, hire necessary staff, set fees and collect money from individual owners to pay for it all. Their decisions can affect owners on issues that range from the age of residents allowed in the community to the activities permitted on unit balconies. A common and contentious restriction in many communities concerns the rental of units by their owners.
While most buyers know townhouses and condos are run by HOAs, they may not realize that single-family homes also may require association membership. These HOAs might exist solely to maintain the sign at the entrance or they could have authority over the exterior appearance of every home.
Like most organizations, HOAs are experiencing financial strains. Owners facing foreclosure are not likely to pay their HOA or condo fees, and once the units are foreclosed, lenders have little incentive to pay.
Faced with nonpayment, an HOA’s first line of defense is to raise fees on its paying members, said Patricia Wigginton, a board member of the Maryland Homeowners Association, which represents HOAs statewide. In some strapped communities, 50 percent of owners are carrying 100 percent of the costs and boards must cut staff, defer maintenance and postpone capital projects. In older buildings, she said, utilities often are on a single meter so the HOA also has to worry about keeping the heat and lights on.
HOAs have a few tools for collecting unpaid fees, said Greg Montero, a lawyer with Inman & Strickler PLC, which assists Virginia HOAs with legal and management issues.
The first step they can take is a hearing, followed by suspension or revocation of member privileges such as reserved parking or clubhouse membership. Next, they can place a lien on the home. In some states these liens have priority status, taking precedence over mortgages and other nontax liens.
Montero said an HOA in Virginia can record a priority lien for only the most recent 90 days of dues. Larger or older bills must be collected through a traditional lawsuit. Under D.C. law, an HOA’s lien supersedes a second mortgage or other nontax liens and can cover the last six months of dues.
Wigginton said her association has tried repeatedly to get a priority lien statute through the Maryland legislature. While it is seldom financially feasible for an HOA to foreclose on its lien, she said it is important for an owner to know that an HOA can do so if it must.
Montero said he had never seen an association completely fail financially, but Wigginton was aware of one community in Prince George’s County where a bankruptcy judge effectively is running the development.
Both experts advised buyers to thoroughly investigate a prospective HOA before they buy. Review the budget and take a hard look at the reserve funds. If they are low or nonexistent, an unplanned repair could trigger a hefty special assessment.
Wigginton said prospective owners also need to talk to their would-be neighbors. “They can tell you the tenor of the community and the governing philosophy of the board,” she said. “Some boards can be difficult,” she added, “but remember they are volunteers with a thankless job.”
Montero goes further: “Buyers must understand the whole concept of living in a community. Can they be comfortable with the specific restrictions? They will have to live with them. Majority rules.”
