Because You Are Buying More Than a Home: Part II

In the first installment we learned that a home buyer who purchases a home in an HOA is not only acquiring a piece of real estate, they are “investing” in a non-profit corporation known as a homeowners association. Like any investment there are risks and obligations imposed on the members of the HOA and because of these risks and obligations we like to say that “you are buying more than a home” when you purchase a home in an HOA.

The risks inherent in being a member of an HOA are, for the most part financial risks, and because of these financial risks the HOA Detective and his partner founded the CRC REPORT™ in 2012. The CRC REPORT™is a due diligence service that provides prospective home buyers the information they need to make informed decisions with respect to the financial stability of the HOA in which their targeted home is located. To learn more about the CRC REPORT™ you can visit crcreport.com.

Aside from the financial obligations imposed on the members of a homeowners association there are other issues that should be considered when someone purchases a home in an HOA. As we learned in the first installment the property within the HOA is subject to restrictions on its use which are codified in a document known as the Covenants, Conditions & Restrictions; or as they are most often referred to, the “CC&Rs.” The CC&Rs are created by the developer of the property and consist of a Declaration; a surveyor’s plat of the property and any exhibits which are needed to supplement the language in the Declaration.

The CC&Rs are a legal document that is recorded with the deed to each lot within the development. The Declaration sets forth the rules and restrictions which are imposed on the property owner who, as a result of purchasing property within the development, becomes contractually obligated to abide by the CC&Rs.

Among the conditions imposed on the property owner by the CC&Rs is mandatory membership in the HOA, which is also created by the developer. As with any corporation the rules by which the HOA  is governed are known as the Bylaws. The Bylaws establish the organizational structure of the HOA in terms of how it will be operated and what the structure of the Board of Directors will be. Whereas the Declaration establishes the terms, conditions and restrictions to which the property itself is subjected, the Bylaws establish how the homeowners association will be operated.

In addition to this mounting stack of legal documents, the owner who purchases a home in an HOA will also be subjected to what are known as the Rules & Regulations, or “Rules & Regs” for short. If it can be said that the CC&Rs govern the use of the property and the Bylaws govern the operation of the HOA, then it is also fair to suggest that the Rules & Regs govern the conduct of the property owners and residents who reside within the HOA. To summarize:

CC&Rs: rules that govern the use of the real property within the HOA.

Bylaws: rules that govern the operation of the HOA.

Rules & Regs: rules that govern the behavior of property owners and residents within the HOA.