Because You’re Buying More Than A Home: Part V

Admittedly, it’s been a while since the HOA Detective touched on this topic, but that’s not because yours truly hasn’t been busy. To the contrary, the number of buyers purchasing homes in HOAs, and condominiums in particular, seems to be never-ending. In our quest help shine the light of day on the pitfalls of homeowners association living, the good folks at the CRC Report have been up to their elbows investigating HOAs as far away as the Aloha State.

At any rate, the question of why we say “you are buying more than a home” when you purchase a home in an HOA remains and with good reason. In a previous post on this topic, albeit  more than a year ago, we touched on the basic legal structure of a homeowners association and how the organization functions from an administrative standpoint. Suffice it to say that an HOA is a not-for-profit corporation with members, that is allegedly organized for the “mutual benefit” of the people who purchase the homes which are under the jurisdiction of this “mutual benefit corporation.”

Depending on the type of HOA we are talking about, the “benefit” to the members may be debatable. One thing we do know for certain is that municipal governments benefit significantly from the creation of HOAs because it relieves the local constabulary of the financial obligation for maintaining much of the infrastructure that has traditionally been associated with residential developments.

In the case of condominiums and other forms of attached housing, in which attached housing units are individually owned, it is obvious that there must be some sort of legal entity that is charged with the responsibility for maintaining various physical elements of the facility and with administering the rules of the organization.

In the more traditional sub-division setting wherein a developer divides a piece of land into individual lots and builds unattached, single-family homes on those lots, and then creates a homeowners association for the purpose of maintaining privately owned infrastructure such as roads, parks, playgrounds and swimming pools, there is a legitimate question regarding whether it is the homeowner who “benefits” from this arrangement; or whether it is actually the local government that is receiving most of the benefits of this “mutual benefit” corporation.

On the surface it might appear that the development industry – with the help of government – has done a fairly good job of convincing a sizeable portion of the U.S. population that living in an HOA is preferable to not becoming a member of a “mutual benefit” corporation when you purchase a home. However, it is also the case that very few new residential developments are built in the U.S. that do not result in a homeowners association being created. Hence, many prospective home buyers have little choice, but to settle for purchasing a home in an HOA.

Even in rural areas where it is hard to imagine the need for an HOA, it is often the case that a developer simply cannot get a project approved for construction unless they agree to create a homeowners association and to privatize the roads, water wells and in some instances even community-owned waste treatment facilities. All while local governments continue to collect property taxes while abrogating its responsibility for maintaining the commons.

The complex nature of these not-for-profit corporations; the added financial burden they impose on the members and the additional rules and property restrictions to which owner/members are subjected, means that you are buying more than a home when you purchase a home in an HOA. In many cases you are acquiring a lot more in the way of potential liability and added financial obligations that result from the need to maintain common area improvements that are privately owned as opposed to being part of the municipal infrastructure.

Lack of adequate educational opportunities for Board members or effective training for people who work in the management industry often results in these not-for-profit corporations being managed and governed by well-intended amateurs and poorly trained paid managers. The combined effects of this calamity can, and often does, result in a “perfect storm” of incompetence, malfeasance and less than ethical business practices.

So, if you are considering the purchase of a home in an HOA, whether it is a condominium, attached home or a single-family home in a traditional subdivision setting that is governed by a homeowners association, be prepared by ordering a CRC Report® before you finalize the purchase. Because you really are buying more than a home!