Buying or selling a home requires a lot of necessary paperwork. When a homebuyer falls in love with a home in a community association there are additional required documents that make selling and buying in an HOA more complicated. Real estate professionals will be familiar with things like buyer approval applications, estoppel or demand letter, and the CC&Rs, but do your clients know what to expect?
Luckily, we’re sharing the important documents you need to know about when buying in an HOA.
Important HOA Documents the Buyer Must Complete
Here is the paperwork you’ll be expected to fill out or provide to the association or property management company.
- Buyer Approval Application - Associations have a right to stop the sale of a home to a potential buyer if you fail to interview with the association, withhold pertinent information, have a criminal past, or show signs of financial irresponsibility.
- A background check - Part of the buyer approval process means that you are subjected to a background check.
- 55+ community verification - In order to confirm the buyer meets their age restrictions, associations may ask for a form to be completed along with copies of driver’s licenses or other proof of age documents.
- Income verification - Some associations require pay stubs to ensure you’re financially stable enough to keep up with your dues.
- Various Authorization Forms - These forms require the buyer’s signature to consent to the background checks as well as approve pertinent parties to obtain the estoppel. This is to prevent people from accessing sensitive financial information and protect the privacy of the current owner.
This is not an exhaustive list of all the documents you have to worry about. In the next video, we share the documents you’ll want to request and review to make an informed decision as a homebuyer.
Important HOA Documents a Buyer Should Review
As a buyer, you have a right to see disclosure documents from an HOA or COA beforehand. You’ll want to take some time before the closing to review these documents you receive from the association.
- The Estoppel or Demand Letter - There are different types of HOA fees when buying, living, and selling in a community association. To know what types of fees you’ll be responsible for as a future homeowner, carefully examine the Estoppel or Demand Letter. This document will show you what dues and assessments are levied against the property and if there are any code violations or fines.
- Dues and Schedule - Since the dues amount and schedule may change at any time, be sure to understand exactly how much you’ll be paying and when before closing. Some associations require you to pay a one-time lump sum due at closing. This is called a capital contribution. The rate is set by the HOA and is deposited in the reserve funds. You may also have multiple associations that require different dues with different schedules.
- Code Violations - The estoppel will also alert you to any current violations against the association’s regulations that will need to be resolved before closing.
- Collections - If any violations with fines go unaddressed for too long, the property’s account may be placed in collections.
- The governing documents of an HOA will help you decide if the community is right for you. These include the CC&Rs, the by-laws, the articles of incorporation, and the rules and regulations.
- The CC&Rs - or Declaration of Covenants, Conditions & Restrictions are the rules of your future neighborhood. The purpose of the CC&Rs is to protect preserve, and enhance the property values in the community, but you might feel like they stifle a sense of uniqueness and charm. Before you close, be sure that you can live with these rules.
- By-Laws - these describe HOW the association is run. As a homeowner, you’re bound by the rules of the association, but the association has rules it must follow too. The by-laws include information on voting rights, how often meetings must be held, and the power and responsibilities of the association regarding the collection of assessments and enforcement of rules.
- Rules and Regulations - Associations usually have wide discretion to adopt separate rules and regulations that you won’t find in the CC&Rs. Review these very carefully to help make your final decision about living under the association’s rules. This includes stipulations like what kind of pets are allowed and any limitations on how you can decorate the exterior of your home.
- Articles of Incorporation - This is a basic legal document that contains the association’s name, location, and its purpose. Usually, there’s no reason for a buyer or owner to review the Articles.
- The previous year’s Meeting Minutes. These are legal documents and an official record of actions taken by board members during a meeting, including financial decisions. To get a good idea of how the association will spend your dues, this is where to look.
- Copies of the financial records of the association will give you an idea of how the finances are managed and a hint if a special assessment may be needed due to unforeseen events like a natural disaster.
If you are buying in the state of Florida, Senate Bill 398 aka the Florida Estoppel Law clarified the obligations of associations when a buyer or their designee requests an estoppel letter. This includes the cost of the estoppel, the turnaround times, the required information, and who pays for the estoppel.
- Insurance Master Policy - Understand what the HOA insurance covers. This will help you get proper homeowner’s insurance. For instance, damage done to the exterior of a condo is usually covered by the association’s reserve funds or a special assessment (which you end up paying), but interior damage, say from a burst pipe, is not. An HO-6 interior unit policy is suggested by insurance agents to protect your property. Show the HOA’s master policy to an insurance agent to get the right coverage for you.
These are just some of the documents you’ll come across as you’re closing on a home in a community association. Don’t be overwhelmed by the amount of paperwork. If you put off reviewing them until the last minute, you could either lose the home of your dreams or end up living in a nightmare of a neighborhood.
Making the process of buying in an HOA easier
For title and real estate agents working with homebuyers and homeowners, it can be difficult to explain all of the caveats of these HOA documents. Other than being available to answer questions and respond to concerns in person or over the phone, there are some ways to make ordering an estoppel and buying in association easier for everyone.
In my conversation with Danielle Kaiser on digital closings, she suggested providing these documents and other documents like the closing disclosure a few days before closing with eSignature technology. This way a buyer can review, ask questions and sign before to reduce time at the closing table.
Chatbots like Alanna, which integrates with closing software like Resware, are also a great way to make title companies more efficient. This allows your Realtor clients and homebuyers and sellers to quickly find the documents and get their questions answered about their upcoming closing.
Outsourcing to third-party due diligence providers like PropLogix has also worked for these title agents.
Is your title or real estate company using a great tool to optimize your customer service or user experience? Have you found a process improvement in your title production that you want to share? Let me know in the comments!