- The Washington Times - Thursday, January 13, 2011

You’ve heard the horror stories: The elderly woman forced to move from her condo because she couldn’t carry her cocker spaniel across the common-room floor, the Virginia couple fined because they posted a “Happy Birthday Jesus” sign on their front lawn shortly after Thanksgiving, the California man called on the carpet for planting too many roses. There’s even an old “X-Files” episode that has the president of a homeowners association conjuring up a Tibetan monster to kill residents who broke the rules.

Before you reach for your light saber, though, consider this: Homeowners associations (HOAs) often can be a force for good, cleaning up snow, maintaining the pool and ensuring that the neighborhood looks its best when potential buyers come to call.

“That’s the power of the homeowners association,” says Prabhjit Singh, owner of D.C.-based Real Estate Empower, which offers continuing-education and real estate classes for consumers. “During the big snow last year, my HOA had plows coming through right away. And they get the best people to do the work.”

More than 60 million Americans live in communities governed by homeowners associations or similar entities, up from just 10,000 in 1970. But understanding how HOAs work can be tricky, especially for new homebuyers looking for just the right neighborhood.

So what exactly is an HOA?

There are all types of homeowners associations, spanning a wide range of properties and settings from low-cost condominiums to retirement villages to exclusive and expensive gated communities.

Whatever the type, all homeowners in these communities automatically become members of - and pay assessments to - the community, condo or homeowners association.

Monthly association dues are figured into determining loan eligibility, so it’s important to find out what these are when putting together financing.

Depending on the neighborhood, dues cover a wide range of amenities and services, from snow removal and hedge trimming to maintaining a pool, clubhouse or even a golf course. The associations work to ensure architectural consistency, regulating such choices as paint color and shingle style to ensure that the quality of the neighborhood -and the home prices - remain high.

Despite the horror stories, most homeowners seem to be fairly satisfied with their associations, according to a December 2009 poll commissioned by the Community Associations Institute (CAI) and conducted by Zogby International.

“In reality, most people who live in community associations don’t have negative views,” says Frank Rathbun, CAI spokesman. “We do the survey every other year, and for the past several, between 80 [percent] and 90 percent say they are neutral or satisfied. Beyond that, the poll showed that many homeowners valued the return they received on their HOA fees and thought HOA rules helped to protect and enhance property values.”

Residents serve on HOA boards in a volunteer capacity and work to enforce community rules, ensure financial stability and organize maintenance and capital improvements.

Things don’t always go smoothly, however, which is one reason the stories of homeowners forced to pay high fines or leave their homes make their way to the airwaves.

“Board members are often reluctant volunteers,” says Jeanne Ketley, president of the Maryland Homeowners Association, which seeks to encourage laws and practices more favorable to homeowners living in covenanted communities. “Many times they have no background in HOA law or condo law, and they rely on managers and associated attorneys, who can lead people astray.”

It’s not always easy to remove a board or change the bylaws once they are in place.

“It’s possible to fix but painful to do,” Ms. Ketley says. “It’s better to be aware from the beginning what you are getting into.”

Indeed, HOAs are not for everyone, Mr. Singh says.

“Some people just don’t like the idea, and they don’t want to pay the dues,” he says.

So the question is, are you the right fit for a homeowners association?

If you don’t have a lot of time to maintain a lot of property or you travel often, the answer may be yes. But that doesn’t mean you shouldn’t get to know what life under a particular HOA means long before you move in.

“People need to do their homework,” Mr. Rathbun says. “A lot of the negative publicity is directly related to people who move in and think the rules won’t apply to them. But for the rules to work, you have to be able to enforce them.”

(CAI offers a downloadable brochure, “Community Matters: What You Should Know Before You Buy,” available from its website, www.caionline.org.)

Any HOA has a set of rules and by-laws, often called covenants, conditions and restrictions (CC&Rs) designed to protect homeowners and maintain the neighborhood’s aesthetic appeal. They work to protect property values by preventing additions or other changes that might detract from a home’s - and a neighborhood’s - appeal.

“Be very careful,” Ms. Ketley says. “Bylaws are as much of a contract as a bank loan, and you have an obligation to abide by them.”

Because the CC&R is essentially a contract, new homeowners have a fixed period to peruse the documents. If the rules seem too stringent, a new homeowner can walk away from the contract without penalty.

A few clauses should send up some red flags, Ms. Ketley says.

“The language is important,” she says. “Don’t sign if the documents say the board is allowed to foreclose for unpaid fines or if the homeowner is responsible for any legal fees in any action the board may take. And if the bylaws have been revised, make sure you understand what the revisions are.”

New homeowners also should check out the neighborhood. Even though the bylaws might include restrictions on nuisances such as noise or cars on cinderblocks, the reality of one or the other can be an entirely different story. Most Realtors recommend going through neighborhoods at different times during the day and at night to get the best sense of the actual “feel” of the neighborhood.

“I say, go neighborhood shopping first,” Mr. Singh says. “You want to understand the quality of life in that area. If homes are not maintained, or yards are unkempt, or there are huge cars all over, you’ll get the impression that something is not going well in the neighborhood.”

And while you are driving around, it is always a good idea to stop and talk with your potential neighbors about the neighborhood in general and the homeowners association in particular.

Other than the neighbors, there are various ways to investigate the homeowners association itself. Check at least three months of HOA meeting minutes to see what the recurring issues are and how the HOA board handles them. Are meetings volatile or low-key? Are the issues resolved, or do they get worse? What’s the attendance like?

If you are interested in securing an FHA- or Fannie Mae-backed mortgage, pay special attention in your documents to see how many of the units in the building or homes in the neighborhood are owner-occupied. Owner-occupiers think differently about their homes - and hanging on to them - than those who purchase homes as investments.

“The FHA has an issue with owners not living in the home because there is a greater risk for foreclosure,” Mr. Singh says. “Their interest is in retaining their primary home, not the investment property.”

Discovering how many homeowners are behind on their association dues is also a way to determine how effective the HOA may be. If it is more than 15 percent, you may want to consider looking elsewhere.

“It’s very important to find out the situation,” Mr.Singh says. “It may not be a problem now, but it could be a problem in the future.”

All of these things will give you valuable insight into the workings of your potential HOA. If you have time, you could even attend a meeting or two on your own.

You also should investigate the size of the HOA’s reserve. That’s particularly important in troubled economic times when many HOAs are struggling as residents lose jobs, fall behind on dues and may even face foreclosure. If the HOA doesn’t have the money to fix an elevator or a broken pipe, you may find yourself taking the stairs and draining your own bank account to pay the plumber.

According to an October 2010 CAI survey, more than half of the country’s community associations are struggling with financial issues related to the mortgage crisis and economic downturn. Neighborhoods are struggling with vacant properties, homes that can’t be sold and residents who simply walk away from their mortgages, homes and financial responsibilities related to the HOA. And banks that foreclose on properties don’t tend to pay HOA fees. The result: HOAs may not be able to fund services and improvements, and there is an added burden on the residents who stay to take up the slack.

Even a stable HOA can offer some challenges to homeowners who want to make changes to the exterior of their homes. If that’s the plan, the first step is always the same.

“Call the HOA,” Mr. Singh says. “Usually little changes are OK, but if you are planning something big, you might want to see if there are similar projects under way in the neighborhood.”

Only after the HOA approves your plans should you then contact the county or city to find out if what you plan to do is permissible. Often things work more smoothly than you might think, unless, of course, part of your plan involves ignoring what is in the bylaws.

“We hear all the horror stories,” Ms. Ketley says. “But a well-functioning HOA can be a pleasure. They key is to be on top of what’s happening and contribute your time and energy. You shouldn’t just sit back and think that other people are going to run the place.”

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