What is a Homeowners Association?

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Buying a house is a hectic process where you will have to make a lot of decisions that can impact the enjoyment of your new home. Between deciding on the number of bedrooms you will need and a safe neighborhood, there will be a lot of factors to consider. One of the aspects worth paying attention to is whether you would like to join a homeowners association.

What You Should Know

  • A homeowners association is a self-run organization in a common-interest community where a board manages the units and the neighborhood
  • HOAs collect fees from the homeowners in the community which help to pay for the maintenance and repairs that may be needed in the neighborhood
  • An HOA imposes rules, known as covenants, conditions, and restrictions, which are legally enforceable to the members of the community
  • HOA fees can range from $100 to thousands of dollars per month

What is a Homeowners Association?

Homeowners Association Infographic

A homeowners association is a self-run organization in a common-interest community where an elected board manages the units and the neighborhood. The members of the board of directors that run the HOA are selected from the community of homeowners. Townhouses, condos, co-ops and single-family homes are typically managed by different types of community associations.

How an HOA works is that typically members of an HOA pay a monthly or yearly fee to the association, which uses the money collected for services to maintain the neighborhood and make repairs when needed. The amount of money that is not used is usually accumulated in a reserve fund that the organization can use when major renovations are needed.

Through their services, an HOA can make being a homeowner easier by mowing the lawn in front of your house, shoveling the snow off the driveway, or by providing neighborhood security. However, HOAs also impose rules and restrictions on communities to ensure peace and order. Some homeowners may not agree with these rules and find them unreasonable or too restrictive of their own rights. This is why it is important to learn about the HOA that runs the community where the property that you are interested in is located.

HOA Fees

House

In order for the homeowners’ association to provide its members with a variety of services, it would need funds to cover the costs of the services. These funds are created by charging a monthly, quarterly, or yearly HOA fee to the homeowners. This fee typically ranges from $50 or $100 to thousands of dollars in luxurious neighborhoods.

What do HOA fees include?

What HOA fees cover depends on the living situation of the community. A condominium may have different maintenance costs from a community of single-family houses. Generally, the fees will depend on the amenities provided to the community and services. These can include:

  • Garbage pick-up
  • Snow removal
  • Electrical system and lighting
  • Lawn care
  • Pest control
  • Elevator maintenance
  • A/C and heating systems
  • Maintenance of amenities such as gyms, swimming pools, sauna
  • Security system

Make sure you are clear on what the homeowners’ association is providing for the fee that it is charging. This can help you make a decision on whether it is worth it for you to be a member of that HOA.

What happens if I don’t pay my HOA fees?

The consequences of not paying your HOA fees can range from being charged a late fee to foreclosure of your property, depending on the specific situation.

Late fees and fines - The HOA may issue a warning or charge a late fee that is added to the balance that you already owe them if you miss a payment. As time goes by, and you still haven’t paid back what you owe, the HOA may charge you with an additional substantial fine or suspend you from accessing the services and amenities that they provide.

Lawsuit - If rather than missing a payment or two, you completely stop making payments to your HOA, then the association is allowed to take legal action against you since you are breaking your initial agreement. The HOA could file a lawsuit or file a lien on your property. Liens are granted when homeowners do not pay back their obligations to a debtor. For example, when you take out a mortgage, the lender has a lien on your property. Therefore, if you stop making mortgage payments, the lender can foreclose on your home.

Foreclosure - In extreme cases, the HOA can force the owner to foreclose on their home.

Can homeowners negotiate fees?

Typically, the HOA charges one fee for all the homeowners and generally does not negotiate the fees. However, if it is a buyers’ market, the HOA may agree to waive the fees or give you a discount for a period of time after which you would pay the regular fees.

Are HOA fees tax deductible?

If the property you are paying HOA fees for is your primary residence, then the HOA fees are not tax-deductible. However, if you are paying HOA fees for a rental or investment property, then you can include HOA fees as rental expenses and deduct them from your taxes. If you rent out the property only for a certain period of time throughout the year, then you have to deduct HOA fees related only to the period of time during which the property was rented.

I can no longer afford to pay HOA fees, what should I do?

If you are going through a period of financial difficulty and can no longer afford to pay the HOA fees, your best option would be to arrange a meeting with the HOA board of directors. You may be able to come to an agreement with the board if the situation is only temporary.

What are special assessments?

If you are considering purchasing a home that is governed by an HOA, when looking through the finances of the association, make sure you check if there are any planned projects. Some renovations that are larger in scale require a lot of funds. To cover the costs of these projects, the HOA charges extra fees for a period of time to the homeowners. For example, If there is an upcoming project to build a basketball court that the members of the HOA can use, you can expect your HOA fees to be bigger during the period of time the project is undertaken if the association does not have any reserve funds. Reserve funds are the fees collected from the homeowners throughout the year that were not spent.

HOA financial condition

It is important to have a thorough understanding of the HOA’s financial condition before choosing to buy a property governed by it. A real estate agent can help you in understanding how well the HOA has operated in the past and whether it is a good idea to purchase a property in that community. If the association continuously experiences financial difficulty, and it doesn’t have any reserve funds, that means that if a special assessment is on its way, or an unexpected repair is needed in the future, the money will come out of the homeowners’ pockets.

HOA Rules

One of the HOA’s other main functions is setting rules and restrictions so that there is peace and order in the community. These rules differ across associations as it is the board of directors that decides on them. It is very important to know the HOA rules before making an offer on the house, since you will have to abide by those rules once you become a member. You can ask your real estate agent to request a copy of the Covenants, conditions and restrictions, or the CC&R document that outlines all the rules that the association operates under.

Neighbourhood

Examples of rules imposed by HOA can include those that relate to the appearance of your home, such as the color your house is painted. If you live in a community where all of the houses of the street are painted in light grey, you too will have to either paint or keep your house the same color as the rest of the neighbors. If you live in a condominium, you may be restricted to what type of pets you are allowed to keep. Since in condos, people live much closer to one another, the rules are usually more strict. HOA rules can also dictate what type of home improvements you can do in your property. Before making a change, you will need the HOA approval first. Lastly, the HOA can even forbid you from renting out your property to others on Airbnb or similar platforms. Therefore, if you purchase a rental home or if you are planning to cover part of your mortgage through renting it out, make sure you are allowed to do so first.

To summarize, if you are someone who does not like following others’ rules and being told what to do with the property they purchased themselves, then you should look for a house that is either not managed by an HOA or is managed by an HOA that has rules that you are comfortable with. If you live in a community governed by an HOA and you do not follow the rules set, you can get fined according to the degree of violation.

Pros and Cons of Homeowners Associations

If you are considering making an offer on a house that is government by a homeowners association, evaluate the following pros and cons and weight what’s more important to you in order to make a decision:

Pros:

1 - Resolves disputes through community rules - Although sometimes restrictive, the rules set by HOAs ensure that members of common-interest communities live in peace with one another. Through setting and enforcing rules, it is easier for an HOA to manage conflicts that may arise in a community.

2 - Protects property values - HOA can enforce rules to the homeowners that limit their freedom of what they can do with their home. For example, the HOA can prevent your neighbor from changing their front yard in a way that it does not look uniform with other properties in a community. This maintains the value of other properties since it protects the appearance of the neighborhood.

3 - Services, amenities and facilities - The HOA provides its members with a range of services such as trash pickup, snow removal, lawn mowing, and other services that help to make your life easier. In some communities, mainly in condominiums, you will find amenities such as swimming pools, gyms or board game rooms, all of which are typically maintained by the HOA or a property management firm that the HOA hires.

4 - Socializing opportunities - Some HOAs even host events for their members. These events are a great opportunity for you to get to know you neighbors and mainly just socialize with others.

Cons:

1 - Fees, dues and assessments - Although HOA provides you with some peace of mind when it comes to services, these privileges come at a price. Depending on the association, the periodic HOA fees can take a significant portion out of your budget, especially when the HOA has a planned project coming up.

2 - Restrictive regulations - Some HOAs have a lot of power and say in what you get and don’t get to do with your own home. Some associations may aggressively ensure that the rules are enforced by putting fines for the smallest breaches.

3 - Governed by volunteers - HOA is run by an elected board of directors, which are volunteer members of the community. These volunteers that manage the finances, fees and rules in the community do not have to have any background or experience in management. This may cause the HOA to operate inefficiently.

4 - Legal consequences of not paying - If at any time you are experiencing financial difficulty or are unhappy with the work of the HOA and you refuse to pay, you face the risk of getting sued. Legal action from HOA against you can result in a fine, a lawsuit, a lien on your property or even foreclosure.

ProsCons
  • Resolves disputes through community rules
  • Protect properties’ values
  • Services, amenities, and facilities
  • Socializing opportunities
  • Fees, dues and assessments
  • Restrictive regulations
  • Governed by volunteers
  • Legal consequences of not paying

HOA versus other associations

Besides HOA, when looking for homes, you may have heard other terms such as community association, property owners association, etc. Below we will see the difference between these terms:

HOA versus community association - Some states consider HOAs to be different from condominium-based HOAs and co-op boards since the interests of these organizations differ from one another. The term “community association” serves as a general term that includes all 3 types of these associations.

HOA versus POA - POA stands for property owners association. POAs differ from HOAs in that members of a POA do not have to be owners of houses in the community. They just need to have an interest in the value of the community’s real estate.

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