- The Washington Times - Friday, January 10, 2003

It all sounds good: A home in a neighborhood with well-manicured common areas, a modern playground complete with all of the latest equipment, a swimming pool and a state-of-the-art recreation center.

It comes complete with rules to protect you in case your neighbor wakes up one day and decides to paint his house pink.

Homeowner associations (HOAs) offer services and security, all for an annual fee. As many as 8,000 new HOAs are formed nationwide each year, and experts advise buyers to look beyond neighborhood perks and big talk to check the overall health of your prospective HOA.

"It's critical that buyers know what they're getting into," says Richard Thompson, national expert on HOA management issues and publisher of the Regenesis Report, a monthly newsletter dedicated to HOAs, a term that also applies to condo and co-op associations.

"Many buyers and real estate agents think this information is boilerplate," he says. "Nothing is further from the truth, and all buyers should read and understand the specifics before closing."

As with any aspect of buying a home, research is the key, but with HOAs, it's knowing where to look.

Information is readily available to buyers who want to check into their prospective Realtor, neighborhood or home, but when it comes to HOA research, buyers rarely look beyond the community's physical appearance, common amenities and assessments.

Generally, HOAs are governed by boards of volunteer owners elected by homeowners. This body usually holds regular business meetings and is responsible for setting and collecting the fees to maintain and run neighborhood operations.

By joining, a homeowner can give the board the final say on any major changes to the exterior of his home.

Membership is generally required and members pay assessments as soon as they buy their homes.

HOAs were not as popular 20 years ago, Today, it's hard to purchase a home in a neighborhood that doesn't have HOA rules. Often, homeowners find out too late that their HOA is not managed well enough to live up to expectations.

The most common complaints people have with HOAs include a lack of long range planning by the board, lack of comprehensive policies and secrecy when it comes to how money is spent.

"If critical information is not available, like the budget, reserves, meeting minutes and governing documents, this is a big red flag to steer clear of this HOA," Mr. Thompson says. "The board is not handling business properly, and there are bound to be recurring problems that impact livability and market values."

The law requires that an association disclose information at a buyer's request, according to the Washington Metropolitan Chapter of the Community Associations Institute (WMCCAI), an organization that serves the educational, business and networking needs of community associations in the Washington area.

Each jurisdiction, however, has different requirements on the details of the disclosure.

The WMCCAI says some jurisdictions require that sellers turn over a package of HOA information to prospective buyers. The contents of this "resale package" should include general information, such as bylaws and assessment information, capital expenditures, reserves, budgets, information about judgments, insurance and architectural violations.

According to the WMCCAI, this package is not required in the District, but it is required in Maryland and Virginia.

Bethesda lawyer Phil Oaks says the information package often isn't adequate, anyway, because many times the file is offered after a deal has been made, and it doesn't give the buyer sufficient time to do research.

Mr. Oaks volunteers with the Maryland Homeowner's Association, a statewide, non-profit organization that provides information, education and benefits to its members in HOAs. He suggests people consider buying the package of documents from the HOA management company in advance. The advance package can cost as much as $100.

Another research option is to contact the person in charge of the HOA and ask a few questions, according to Jane Leong of WMCCAI.

"The best way for a potential buyer to find out about the health of an HOA is to contact the association's manager or management company. The manager should be able to address the questions," she says.

Mr. Oaks advises buyers to beware of the possibility of having to pay two associations.

"There may be one set of dues for the smaller benefits like lawn cutting, but a master association may have their own dues to manage the big facilities such as swimming pools, recreation centers and roads," he says.

Also, in new neighborhoods, developers may make some of the assessments initially, Mr. Oaks says. Once the community is complete, dues could increase because the developer is no longer taking responsibility for certain neighborhood features.

Also important is to be aware of who is managing the association.

"Most boards aren't competent enough to manage an association, and it is far better for a professional management company to oversee the HOA," Mr. Oaks says.

Mr. Thompson agrees.

"Self-management often indicates a problem, since the board is rarely qualified to run an HOA in a professional way. Being professionally managed by a management company that specializes in HOA management is a definite plus," he says.

"Buyers into HOAs should be most concerned with finding out what are the restrictions, what facilities is the HOA required to maintain, and how much, if any, do they have set aside in their reserves," Mr. Oaks says. He adds that county courthouses should have a depository statement, which includes disclosures, restrictions and budget information for the HOAs.

The financial condition is very important. Mr. Oaks recommends that buyers find out how much money the association has set aside.

"You need to make sure they are well-budgeted and have a good reserve. Find out what facilities they will have to maintain. Are they responsible for the street light post and retaining walls also?" he says.

"Failure to plan for predictable expenses often mirrors a lack of ongoing maintenance. This causes declining property values and inevitably leads to expensive and unfair special assessments," Mr. Thompson says.

Mr. Thompson's Web site (www.regenesis.net) offers a resale disclosure checklist. Some of his suggestions to help determine the overall health of an HOA include making sure that you have access to:

• Governing documents, which includes the articles of incorporation, declaration, bylaws, rules and regulation, policies and resolutions.

• Newsletters, because they reveal such events as renovation and litigation that could possibly indicate a special assessment.

• Meeting minutes for the past 12 months, which include information about the fiscal state of the association.

• Operating budget for the most recent year and previous year.

• Current regular assessment, because fees often increase at the first of the year. If you're buying in the last quarter of the year, always check for any proposed budget increase.

• Litigation activity, because it could require a special assessment to pay legal costs or a judgment against the HOA.

• Key contact information, including the name, e-mail address and phone number of the board members and the property manager.

• Collection policy. If one is not in place, the HOA could be playing favorites or neglecting to press for collection at all.

In addition, the experts also recommend good old-fashioned conversation with neighbors.

"Buyers should knock on a few doors and get a general satisfaction level with how the HOA is run," Mr. Thompson says.

Mr. Oaks agrees. "Talk to the neighbors and ask how they like the community. Make sure that you understand the restrictions and assessments."

The WMCCAI says living in a cooperative or condo with shared property is not for everyone. Before you buy, you should carefully consider the advantages and disadvantages and weigh the amenities with the assessments.

Surveys have shown that the overall appearance of a community and the common amenities are among the primary factors that attract potential buyers.

WMCCAI officials say HOAs give people of only average means an opportunity to enjoy many amenities that would otherwise be unaffordable.

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