Buying into an HOA? You are your own fiduciary!

For many Americans, living in an HOA provides tremendous benefits:

  • affordability, especially in condo or townhouse communities
  • standards of care, to maintain a look and feel that helps preserve value
  • common facilities (whether social, recreational or security)
  • a sense of community

Yet unlike in Canada, Americans don’t have a fiduciary responsible for advising you on critical issues affecting the phsyical or financial condition of your HOA.  Why not?  Why not indeed: a real estate professional is far better placed to understand issues than a prospective purchaser, especially in the case of first time buyers.

Stories of young buyers entering a community and being hit with special assessments for tens of thousands of dollars just months after closing are common, and often the issues are discussed in meeting minutes or set out in reserve studies that any reasonable professional would quickly identify.  If that special assessment has not been approved a seller has no duty to disclose it, so the buyer could be stuck paying more than anticipated within months of purchase.

So how do you protect yourself?  While more voices are championing education of realtors to bring them into this process, until there are systematic changes you are your own fiduciary.

If buying into an HOA, you should carefully review:

  • the information certificate (varies by state but covers critical issues like fees and status)
  • two years of meeting minutes (this is where critical issues are discussed)
  • the latest reserve study (if there isn’t one, hire an inspector to review common assets – you can use any findings to negotiate or reconsider)
  • CC&Rs and any rules (to understand the lifestyle and architectural restrictions)
  • the annual budget (how your money is spent)
  • insurance (to understand coverage)

This can be hundreds of pages of material, which is at first overwhelming.  Just remember that this is the biggest financial decision that most of us make. Take your time and do not hope for the best!

There are tools to help you, and Eli Report is one of them. Simply upload the HOA documents and you will receive a summary of critical issues within minutes – and your first report is completely free.  Alternatively, you can hire a manual document review service that may cost several hundred dollars and take a few days, or request that your attorney do so.