HOAs – What’s Important to Know!

What is a homeowner association?

A homeowner association, also called HOAs or a homeowner community, makes and enforces rules within a subdivision, planned or gated community, single-family development, townhome, co-ops, or condominium building. The residents generally make up the membership (the governing body) and they are generally elected by other fellow residents.

What are bylaws?

Bylaws are rules that govern how the HOA operates. They often spell out how often the HOA should meet, the duties of officers and board of directors, membership and voting rights, and more. The bylaws spell out which responsibilities are the associations vs. the homeowners. Membership in an HOA binds people to the covenants, conditions, and restrictions (CC&Rs).

Are HOAs common?

Per Investopedia, according to 2017 data analysis, Americans have a one in five chance of living in a home that’s part of an HOA.

What are HOA fees?

HOA fees are payments due that are assessed by the homeowner association to cover services that are provided. If you purchase a property as your primary residence, you will generally be required to pay HOA fees should an HOA exist. Depending upon the rules established, HOA fees are paid monthly, quarterly, or yearly depending upon an established agreement. Fees may vary between HOAs. Trulia found that HOA fees are higher in major cities and older buildings and complexes with more units overall.

What are the main benefits of an HOA?

HOAs primarily ensure that all residents adhere to rules established by the governing body. The rules are sometimes called covenants, conditions, or restrictions. The HOA ensures that people are satisfied with the neighborhood in which they live and that properties are well maintained and free of disturbances. In addition to safeguarding the value of properties, they also regulate expenses related to shared amenities, upkeep, and maintenance. For example, in a townhouse community, yard work, such as mowing or landscaping, or snow removal might be shared covered expenses. HOAs may also address residents’ concerns to reduce or resolve conflicts peacefully between homeowners.

Are there any drawbacks to HOAs?

Besides having to pay fees on top of one’s mortgage or home payment, HOAs may limit specific activities. Examples may include restrictions on commercial vehicles parked in the development, what you put on your front lawn, what color you paint your home’s exterior, how much noise you make, and so forth. Rules vary between communities. While some may seem strict or may appear to infringe on personal rights, the rules are established to maintain standards for the greater good of the community. Thus, it’s important to know what rules and restrictions are in place and be active in one’s HOA to effect change.

Are HOA fees tax deductible?

Per H&R Block, if you purchase property as your primary residence and you are required to pay monthly, quarterly, or yearly HOA fees, you cannot deduct the HOA fees on your tax return. However, if you own and use the property as a rental, then the IRS will allow you to deduct HOA fees. If you use the rental property for personal use for a portion of the year, then you can only deduct a portion of HOA fees.

Are HOA fees an important consideration when buying a home?

Yes. It’s important to understand the fees, whether you can afford them, and what you get in exchange. For example, if pool membership is included in your HOA fees, that perk may lower or eliminate another expense such as membership fees to join a different pool. Or, if trash pickup or utilities are included, it will counteract those expenses for which one would otherwise be personally accountable.

Are HOA fees fixed rates for life?

No. Homeowner dues are not fixed rates. Note that HOA fees are subject to change. Folks agree to pay dues when they buy a home in an HOA community. Thus, they are responsible for paying the fees even if they increase. Inflation is often the biggest culprit of increased fees. An HOA can typically raise dues as much as is required to meet its annual budget, with some exceptions. Some HOAs may portion an amount for a reserve fund. It is common for those HOAs to keep the reserve fund at healthy levels. Sometimes professionals are hired to conduct a reserve study. Other factors that may raise HOA dues may include higher cost of services, high delinquency rates, and additional services or amenities.

Is membership in an HOA mandatory?

Where an HOA is established, membership is generally automatic for all owners. Typically, homeowners do not have a choice on whether to join. Legally, sellers are required to disclose HOA membership to their buyers. If you’re buying into an HOA, look over the covenants, conditions, and restrictions to understand how they apply to your community. A line item for HOA fees may appear on closing papers showing the HOA dues.

What happens if you break HOA rules?

Breaking the rules can result in violations and fines as established by the HOA. Repeated violations may, in some cases, result in a lien being put on the property.

What happens if you fail to pay HOA fees?

In the event you don’t pay, HOAs can send your past-due accounts to collections. In some cases, they may put a lien on your property, or it may lead to foreclosure in extreme cases.

Do all HOAs manage their own affairs?

Property owners can manage HOAs themselves, however, in some cases, especially for large HOAs, a management company is used instead. The HOA board and membership make decisions and delegate daily duties to the management company, such as collecting dues and sending out notices.

Do HOAs provide insurance?

HOA dues may pay for a master insurance policy for common areas, such as for the outside structure of a building, should that apply. However, policies do not typically cover personal property or the inside of units. For this reason, homeowners must understand what is covered, and be sure to purchase insurance coverage for what is excluded from the master insurance policy. This likely includes their own unit’s interior and all that falls under personal liability.  

This article is purely informational and is not offered as a substitute for professional advice.