6 Things Retirees Need to Know About HOAs

Many people who move into retirement soon find an unexpected new presence in their life.  Home Owners Association (HOAs), also called Community Associations, control the governance of many aspects of life in the condominiums and active adult developments that many retirees choose to live in. It is critical that retirees understand what they are getting into, before they close on their retirement dream.  As Joe West, CEO of the Community Associations Network, told Topretirements many years ago, the most important thing to consider when moving is: “Don’t fall in love with the house before you check out the association”.

These associations are key to successful living in any 55+, active adult, or condominium development that has shared facilities. They set the rules, enforce compliance, manage the assets, and look out for the financial and legal well being of their communities. The collapse of the condos in Surfside, Florida has become a case study of what can go wrong when serious problems beset a community. 

Before you buy – 6 things to consider:

There is a certain amount of due diligence that must be made before signing on to buy a retirement dream home. Some careful work now can help eliminate the risk of serious disappointments down the road. Here are some questions and actions you need to take.

How effective is your new HOA?

Any organization is only as good as the people running it and the structure that governs it.  Try to meet some board members or the professional managers it might employ. Are they forthcoming with information? Do they seem engaged and receptive, and do new members join the board from time to time? 

What is its financial health?

The condo building that collapsed in Surfside had an overwhelmingly negative financial situation – millions needed for urgent repairs, but inadequate reserves to handle them. What kind of reserves does this association have in hand for future projects like streets, elevators, roofs, painting, and other repairs? Is there a reserve study, and is it recent? Are the dues reasonable and predictable? Is there a history of unplanned assessments to pay for projects?  A tendency to underfund the budget and kick the can down the road can be a warning flag. Likewise, a significant number of homeowners who are in arrears on their dues or assessments is another warning flag (after the financial collapse of 2008 this was a very serious problem in many communities).

Did you get access to the minutes and financial documents?

You have a right to know what you are getting into.  Are there regular board meetings, and do things get done? Is member input permitted and acknowledged? Do the financial documents look up to date, and have they been audited? 

What are the looming issues?

Almost every building or community has some kind of issue that needs to be planned for. Are these projects being talked about at board meetings, and is there a plan to fund them? Buying into a community that faces imminent huge assessments could be a costly mistake.

Has the community completed the transition from developer to HOA?

The trickiest phase of any community’s lifetime is usually when control shifts from the developer to the association. There might be communal assets and amenities that are sold to the homeowners, or perhaps retained by the developer. If so, how much, and how, will they be paid for or managed? Does the new HOA have good bylaws and a qualified board in place to run things?

What rules might affect you and your plans?

The last thing you want to do is move into your new active adult community  and find out that you are one dog over the pet limit per household. Or discover that you can’t park your boat in the driveway, paint your front door red, or put in your own landscaping. Get a copy of the rules and regulations, and ask questions if you are unsure.

Bottom lines

Well run HOAs and community associations perform many necessary functions. But the laws governing the nation’s estimated 270,000 residential and commercial HOAs are confusing and sometimes non-existent. States like California and Florida have extensive laws governing them, but many other states have just a condominium law or a poorly written, often amended HOA law. The absence of clear legal guidance can be a problem. Having an effective board and reasonable bylaws is a good defense against that.

HOAs are often viewed as the villain by many homeowners. But in practice most people that volunteer for these boards are unsung heroes – they work hard and they spend a lot of time unraveling really thorny questions. As you get familiar with your community, consider running for the board and offering your experience and hard work.

For more on this topic see the 3 part series at Topretirements.com: “Meet Your New Boss, the HOA”.