Tuesday, September 11, 2012

Homeowners Associations: Good or Bad? Here Are Some Points to Ponder

[Published Sept. 13, 2012, in the Denver Post and four Jefferson County weekly newspapers]

Although “covenants” have been around for decades, the concept of homeowner associations to enforce those covenants is more recent. By my observation (from reviewing title documents for numerous closings), it is primarily the subdivisions created in the 1990’s and later which have HOAs that collect dues and manage their subdivisions — and which can enforce their covenants.

The older subdivisions had covenants, but typically there was no entity created to enforce them. If a homeowner violated a covenant, a neighbor who was upset at that violation had no recourse, other than to sue in civil court.  In addition, the older covenants typically had expiration dates, such as 30 years. If, after that time, the majority of homeowners did not petition to extend the covenants, then the covenants simply expired.

When buyers look at the various homes on the market, they will often want to know about the HOA and the dues charged. Occasionally a buyer will not even consider a home which belongs to an HOA, regardless of the amount of the dues. This could be based on a previous bad experience, or perhaps the buyer has an RV or boat trailer and wants to be able to park it at home instead of paying to store it somewhere else.

The main purpose of HOAs and the covenants they enforce is to protect the property values by preventing individual properties from becoming eyesores or annoyances to neighboring properties.

Examples include keeping driveways clear of RVs and boat trailers (other than for loading and unloading), but they also include making homeowners mow their lawns, clear weeds, and keep the exterior of the house freshly painted. In my own subdivision, I have been forced to repaint my faded garage doors, remove a lawn ornament from the open space adjacent to my house, and take trash cans inside instead of leaving them next to my house. I also got a letter once saying they had reason to believe I was planning exterior changes to my house and reminding me to get permission before starting work. (I had written about my plans in this column!)

On one level, I found this annoying, but on another I thought it was reasonable and I complied. (If I hadn’t, I could be fined, and state law allows an HOA to foreclose on a member’s home, if necessary, to collect unpaid dues and fines.)

Regarding dues, these can be excessive, but in most cases they cover valid expenses such as insurance, trash removal, common area maintenance, etc. [End of column as published in the newspapers.] 

If the HOA has a master insurance policy that spares you the expense of buying homeowner's insurance, that could be saving you $100 or more per month. If however, the HOA has a swimming pool to maintain and you never swim, your HOA dues may be in excess of the value you receive. You're paying for a swimming pool you'll never use. Find out what the HOA fee covers and whether you'll benefit from those covered services.

Regarding that master insurance policy, it's important to know if it covers interior walls in case of fire.  If it does, you only need to buy optional "tenant's" coverage for your personal property.  If it does not, however, you'll need to buy a condo policy which includes that coverage.

An important factor to consider is whether the HOA is "self-managed" or hires a management company.  If it is self-managed by the HOA officers (volunteers), your dues will probably be a better value than if your HOA hires a management company. On the other hand, a management company will probably do a better job of policing compliance with covenants -- if that's what you want!

The worst thing about management companies, in my opinion, is the fees that they extract from members when they sell their home. These companies typically charge excessive fees to produce a status letter (indicating whether you're up to date on dues payments) and other HOA documents required for a transaction -- and for transferring the ownership of your home on their records.  These fees amount to as much as $300-400, and not a penny of that benefits the HOA -- it's a profit center for the management company.

1 comment:

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