What is an HOA and what's required when purchasing a home in an HOA?

First, what is an HOA?

HOA is an abbreviation for Home Owners Association or Property Owners Association (POA).  An HOA is an organization consisting of homeowners, designed to enforce Deed Restrictions and maintain the common areas with the goal to increase property values.  If you purchase a home within a homeowners association, then you are automatically a member and subject to the monetary dues and restrictions.  They are common in neighborhoods, developed communities, townhomes, condos.  While most HOA's are good, there are some that get a bad reputation for poor maintenance of common areas, misappropriation of dues and strictly enforcing deed restrictions.  I'm sure you've heard the horror stories of neighbors getting letters for 3 weeds in the flower beds! 

Whether we like them or not, they are there and often a necessity!  But if you're buying a home, you should know as much about them as possible which is why there is a form to be included in all purchase contracts titled Addendum for Property Subject to Mandatory Membership in a Property Owners Association.  This form, often referred to as an HOA Addendum, breaks down who will pay transfer fees, who is responsible for acquiring documents needed for the sale and what documents are required.  

What you need to know when Buying a Home in an HOA

When you purchase a home, the Title Company needs to know some basic information from the HOA.  The HOA Addendum allows the future homeowner to select from 2 options: a Statement of Account or the Subdivision Information (which includes a Resale Certificate and Deed Restrictions).  The standard form that answers the minimum required information is called a Statement of Account.  A Statement of Account typically addresses the following information:

1. Yearly HOA Dues. 
2. Calendar year for the dues (Jan. to Dec. or July to June for example).
3. Past due amounts to collect.
4. Deed Restriction Violations.

There is obviously a lot more information that a future homeowner should know though!  For example, wouldn't you like to know what the Deed Restrictions are or does the HOA have enough money in their account to take care of the play areas or community pool next year?  This is exactly what the Subdivision Information is for, providing the following information:

1. All Information from the Statement of Account.
2. Profit and Loss Statement for the previous calendar year.
3. Financial Forecast for the next calendar year.
4. Copy of Bank Reserve Statements.
5. Copy of Insurance for the Community Common Areas.
6. Copy of the Deed Restrictions.

While a Seller is not required to provide the Subdivision Information (it is negotiable on the HOA Addendum), the Buyer can opt to acquire one at their own expense.  Costs for the Subdivision Information ranges from $250 to $400 and up and it often takes 10-20 days to obtain the documents.  Keep in mind that some communities may have 2 HOA's and require 2 Certificates!  

Do I really need the Subdivision Information?

Optimally, every purchase would be accompanied with the Subdivision Information, but the expense isn't very conducive.  And since most Homeowners Associations are managed by other companies, these documents become a source of income and not likely to decrease in price!  85 to 90% of home purchases use the Statement of Account, but it never hurts to negotiate its' inclusion.

There is also another less-told detail about opting to receive the Subdivision Information on an HOA Addendum though - if the seller fails to deliver it on time, the buyer has an additional 3 days to terminate the contract!  And if the Seller completely fails to deliver the Information, the buyer can terminate the contract any time prior to closing.  Those are serious implications so   

Purchasing a home in a Homeowners Association is an important decision.  What's more important though is finding an experienced Realtor that can walk you through the important options and documents that come along with a Homeowners Association!