Is Your Homeowners Association Underfunded?
by the Real Estate Bloggers
It is one of those horrible scenarios, but you may be on the hook for a potentially large assessment from your homeowners association, and not even know it. In fact, your homeowners association may be close to being broke…
When you buy a home that is governed by a homeowners association you sign a long document that gives the association certain powers over your property. Typically you get the bylaws right around closing time as you have 100 plates spinning in the air, and you give it a quick glance at the homeowner bylaws and then sign that you agree to be bound by them.
This could be costly. These agreements govern how the homeowners association can collect their dues, including potentially foreclosing on your house to do so, how you must maintain your home, and assess special fees if the association needs to make upgrades or create new amenities.
So you may wake up one day to hear about a $10,000 assessment because the association feels the need to fix a problem or add an amenity and it will be coming out of your bank account.
Now here is the scariest part, a majority of the homeowners associations in the United States are underfunded. The housing crisis has put incredible pressure on the associations as people just can not pay their dues, or the homes in their neighborhoods are in foreclosure.
Foreclosures on delinquent properties by homeowners associations were almost unheard of before the financial crisis of 2008. Now lawyers and real estate researchers say they are becoming more common as association funding bases shrink because of previously foreclosed homes’ standing empty. About 70 percent of association-governed communities are underfunded, up 12.5 percent from 10 years ago, according to Association Reserves. The average association has financial reserve accounts — the amount required to maintain infrastructure and common areas — that are only funded at 52 percent, down from 60 percent a decade ago, its research shows. via AOL Real Estate
This is not to scare you from buying a home with a homeowners association, but do read the documents when looking at the neighborhoods and ask about potential assessments in the future, or common maintenance issues that you see. It may save you from an expensive mistake.
(link to The Real Estate Bloggers)
http://www.therealestatebloggers.com/is-your-homeowners-association-underfunded/
Here’s how I interpret this article:
The sign says the road is going to end. If you keep driving you are guaranteed to fly off into the precipice.
It’s not hard to understand the crisis that lies ahead with HOAs. Managing a budget has never been a strong part of HOA management. It didn’t need to be because there is always a bottomless pit of money….called the homeowners bank accounts.
What do you do if the association never disclosed there were incidents and issues that they had prior to your purchase?
First thing I’d do is spend an hour in the lawyer’s office to see if there is a breach of contract. Anyone else want to answer this?
Steve,
If you applied for a mortgage to purchase the property in the HOA there should have been an “inquiry” by the mortgage company or bank. On that “inquiry” the mortgage company asks questions such as: how many rentals, how much in the reserve account, and is there any pending litigation?
Depending on the answers given (and your credit rating, income to debt, employment etc) that is what the mortgage company uses as their basis for whether or not to make a mortgage on that property. If the HOA failed to disclose the truth on that inquiry they could be committing fraud. You can ask your mortgage company to pprovide you with a copy of that inquiry sheet.
If you did not obtain a mortgage, I would check with your state Board of Realtors and find out legally what must be disclosed to a buyer and by whom. Did you buy from the owner or through a real estate agent?
After you have that information, I agree with Ward. Contact an attorney (non CAI affiliated)and show them the documents you were given at closing including the disclosure statement from the seller.
After my experience I would advise everyone to always check with the county court records on the address you are looking to buy. If the property has been in litigation, go to the courthouse and request the file and read what the lawsuit was about. You just might find things that would lead you not to buy the property regardless of what the owner or Realtor are telling you.
A few years ago we had an owner with connections in the mortgage business. An “inquiry” was sent just to see what the HOA would reveal. The owner brought it to me and the information was totally false. Had that been a legitimate purchase and in the process of getting the loan the purchaser and the mortgage company would have been completely duped!