Married to the homeowners association

In marriage, sometimes it dawns on you -- slowly -- after the ceremony that not only have you agreed to bring a spouse into your life, but a full spectrum of in-laws, too.

So, too, it can be with homeowners associations: Maybe you thought only that you were getting a residence with, say, a great kitchen or a dazzling view -- but you also bought into a condo board or owners association that will make demands on your cash and maybe on your lifestyle.

"I don't know why it is that so many people don't do more research on their homeowners association," said Mindy Waitsman, an attorney with the Atlanta firm of Weissman, Nowack, Curry & Wilco, which represents about 900 owners associations and condo boards in the Atlanta area. "We all know at some level that our home is one of our biggest investments, but it just isn't treated that way."

Waitsman and others who deal regularly with the ins and outs of homeowners association rules and finances say it's wise to gather as much information as possible about HOA finances and policies before signing a contract to purchase property within one.

Five things to check regarding the HOA "family" you're considering:

1. Gather all the paperwork you can.

Not all associations will be forthcoming with documentation that provides a snapshot of the HOA, but minimally you or your real estate agent should be able to get copies of the bylaws or the covenants, conditions and restrictions (often referred to in shorthand as CC&Rs), according to Frank Rathbun, a spokesman for the Community Associations Institute, a Washington trade group that represents HOA interests. The CC&Rs are a blueprint for the HOA structure, laying down the rules for the board and its financial structure and how the condo building or development will be maintained.

But there are other insightful documents that you also might seek, including the annual budget, bylaws and regulations, board minutes and the association's financial statement. Within those, you might get a sense of the HOA's financial stability, whether it has ample reserve funds to cover emergencies, etc.

HOA boards aren't required to provide all this documentation to potential homeowners, but if a development has a professional management company, a manager might provide them, Waitsman said. She also said the CC&Rs should be public records, available through the land records, though local governments might charge a copying fee.

Getting a handle on the HOA finances is important, both Waitsman and Rathbun said -- residents could be facing big increases in monthly fees or pricey special assessments, such as for roof replacement, they said.

"The reality is, community associations are businesses, and they should be run like businesses," said Rathbun. "People have certain expectations with respect to services and amenities, and it's the board's obligation to provide those services and amenities."

(Rathbun's group offers a free brochure, "What You Should Know Before Buying," that is downloadable at the Bookstore section of its Web site, CAIonline.org.)

2. The elephant in the room: Foreclosures.

It might seem like a rude question to ask early in your relationship with the HOA -- or even before you really have any relationship with the group. But these days, the foreclosure issue, and how it is affecting an association's bottom line, must be raised.

In any locale, foreclosures can take a toll on the larger community, but they particularly impact HOAs, Waitsman said. That's because neglected, unoccupied homes not only can be a blight, but homeowners in foreclosure probably aren't paying their assessments.

"One of the questions I would ask (of board members or management staff) is what percentage of the owners are delinquent" on their monthly assessments, she said. "Mortgage companies will certainly be asking that question."

Further, she said, even if homeowners aren't behind in their mortgages, some might be failing to pay their assessments in this economy.

"When we meet with HOA boards, one of the big issues they raise is: 'We are not collecting money (from the homeowners),' " she said. "They ask, 'Can you tell us, from our documents, how best we can convince people that they have to pay?' "

And if HOAs, as Rathbun said, are businesses, they can founder just as other businesses can. At least seven Florida condo associations have filed for bankruptcy in the past couple of years, according to the Miami Herald. Most of them got into trouble not because of their own management practices, but because homeowners didn't pay their bills. Declaring bankruptcy was necessary to keep utilities from cutting off services.

Many associations have the legal right to foreclose on residents who don't pay their annual fees, but in Florida and some other areas hard-hit by the housing economy, HOA management companies have begun to foreclose on owners who are behind.

3. With the most ugly financial questions asked, a potential buyer then should consider: "Am I a good fit for this community?"

HOAs are, in effect, a form of government, and might have rules you didn't anticipate.

"You have to look at the restrictions, absolutely," Waitsman said. "People don't realize that they might not to be able to, say, put out a sign on the lawn saying you've just had a new baby, without their permission. Maybe you can't have a garage sale without permission. You may think you can put in a fence, but you can't."

For some, certain rules have come as unwelcome surprises, occasionally leading to lawsuits over such things as erecting elaborate light shows on lawns at Christmas or even flying the American flag.

Such rules -- which might also govern the size and appearance of a room addition or even a home's paint colors -- are intended to preserve the nature of the community, protect property values and meet the established expectations of the residents, Rathbun said. He said most residents seem to be comfortable with the idea of restrictions.

"In late 2007, we did a survey of community association residents, and 74 percent of them said the rules protect and enhance their community," Rathbun said.

4. Before you buy, take a walk.

"Walk the community a few times," Rathbun suggested. "Talk to the residents."

Ask them if they're happy with the way the assessments are being spent, he said. And inquire whether there's good two-way communications between the residents and the managers or the board.

"Walk around, and you can get a sense of what it's like living here, whether it's well managed," he said. Take a hard look at swimming pools, tennis courts, exercise rooms, playgrounds, etc., to gauge the attention to maintenance.

5. Is it OK to be a landlord there?

"The No. 1 thing that people don't ever seem to ask (before they buy) is whether at some point they can lease out (the house or unit)," Waitsman said. "People never think of looking, but it's always spelled out in the declarations."

She said the matter varies widely from community to community -- some forbid tenants, some may require an owner to wait a year before leasing, other may permit it only if they can prove financial hardship.

Waitsman said it's not only a matter of concern to owner-investors who set out to rent immediately -- in this real estate economy, homeowners who want to move may be unable to sell and renting is their only option.

Mary Umberger is a Chicago-based writer.

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