Your Neighbors May Not Be Your Allies: How To Buy From A Homeowners Association.

When you buy a home from a community association, you are relying on your neighbors to protect your investment. Be careful, because your interests and theirs may not match.

Lisa Marshall and Donald Welsh of Houston own a 4,000 square foot home that could eventually fall into the Buffalo Bayou, and they say their homeowners association is at fault for not maintaining the shoreline.

The association’s board of directors envisioned a plan worth more than a million dollars to strengthen the shore. It was rejected in 2019 by homeowners who didn’t want their valuation to go up to pay for it.

“At one of the HOA meetings, one of our neighbors actually said, ‘I don’t care if this house and everything in it gets taken,” “Marshall said. Barron.

The association maintains that it has no obligation to fortify the shore. Marshall and Welsh were aware of shoreline erosion and homeowners’ reluctance to fund repairs when they bought the home in 2013, according to an association lawyer.

A quarter of Americans now belong to some homeowners association, condominium association, or community association of one type or another. The associations are run by boards of directors who can face the anger of residents, and significant opposition, if they seek to raise membership fees. This can mean that the necessary work is not done quickly or, sometimes, not at all.

This dynamic was tragically highlighted in June when the Champlain South Towers in Surfside, Florida collapsed, killing 98 residents. The cause of the disaster is still under investigation, but the condominium association would have known since 2018 that the 40-year-old building needed millions of dollars to fix the crumbling concrete in its garage.

The industry’s leading trade group, the Community Associations Institute, recently began urging state legislatures to tighten association regulations “to ensure that a tragedy like this does not happen again.” Among other things, the institute proposes that if a building becomes unsafe, “the board of directors of a community association should have the power to impose a special assessment or borrow the funds necessary to carry out immediate repairs without the need for it. vote of the members ”.

If you are thinking about buying a condo or a home that is part of a homeowners association, there are steps you can take to protect your investment. These include making sure that the association has sufficient reserves for planned expenses and reading the minutes of the board of directors to ensure that there are no impending issues that could require special assessment.

Community associations were not common until the 1970s. A construction boom in condominium projects and planned communities changed that.

Some associations assume limited liability such as the operation and repair of the neighborhood swimming pool. Other associations, especially those for condo projects, can play a crucial role in the maintenance of the entire building, with the exception of the interior of the apartments.

Residents love community associations because they frequently tackle tasks like snow removal and protect property values ​​by upholding building standards. Municipalities like them because they often take over many of the services that cities have traditionally provided, such as road or park maintenance.

Problems arise when the association does not have enough money to keep the common space in good condition. Many of the condominium projects erected in the 1970s and 1980s are aging and maintenance issues are getting worse. In addition, many condo projects have been built near the ocean, so the rising waters and stormier weather require more maintenance.

If you buy a house from a community association, you should check the association as carefully as you check the house. An association should have a back-up study that estimates when predictable expenses fall due and whether the association is saving enough money through appraisals to pay them. If a building does not have a reserve study, it is a red flag.

No one knows how many community associations are underfunded. “It’s a problem,” says Peter Miller of Annapolis, Md., Whose cabinet is hired by community associations to conduct studies on reserves. “The biggest problem is we don’t know how big the problem is. ”

Suppose you buy a residence in a condominium whose roof has an expected life of 20 years and was replaced 10 years ago. The roof is at mid-life, so the association must have a reserve roughly equal to half the cost of a new roof. It is the same story for the elevators of the building and its exterior.

If your building is not valuing enough money, it may need to impose a special valuation at some point or increase its regular valuation. Whoever owns a unit at that time will end up with the invoice. If you own a condo tower apartment for a year and there is a special fee for, say, new balconies, you could end up paying for decades of use by others.

Well-run associations take reserve studies seriously. The Hilton Head Plantation in South Carolina has 4,250 homes on 4,000 acres. “I have three pavilions to maintain,” says Peter Kristian, general manager of the association for 22 years. “I have tennis courts. I have 73 miles of roads.

Homeowners pay an average appraisal of $ 1,190 per year. Most of this money goes to pay for the operation of the complex, but the association is saving about $ 800,000 per year to pay for future repairs.

The association has raised a fund of $ 2.6 million to pay for expected repairs, and another fund of $ 2.6 million to pay for the costs of hurricanes or tropical storms. It also has a $ 2 million line of credit.

If Hilton Head is directly affected by a major hurricane, the project will likely still have to impose a special assessment or increase its regular assessment. “People ask how much money you should have in a weather emergency fund,” says Kristian. “And I say there is never enough money because if you get hit by a hurricane of class 3 or 4 it’s going to wipe everything out.”

Many associations don’t set aside enough money for living expenses, says real estate lawyer Jessica Miller of Boulder, Colorado. “A lot of people buy in Colorado communities and don’t understand how underfunded their HOAs are,” she says. “And then they get a special evaluation and are really shocked by it.”

Even experts can be surprised. Dan Zimberoff, a real estate attorney from San Diego, bought a condo in 2017 in downtown San Diego. He studied the minutes of the board of directors and the study of the building reservation in advance, and chose a project that was 25 years old so that any construction defect was apparent. And he spoke to the residents of the complex to detect any problems.

Eighteen months after its purchase, the resort passed a special appraisal for plumbing problems that cost Zimberoff $ 17,000. A year later, he was struck with a special assessment of $ 22,000 for the replacement of maintenance machinery on the roof.

“I would never buy from a condo association again,” says Zimberoff, who ended up selling the unit for a loss of over $ 100,000 in a rising real estate market. “I thought I did due diligence. “

In the case of Lisa Marshall and Donald Welsh in Houston, the couple thought they knew what they were getting into when they bought their home in Buffalo Bayou in 2013.

The association was already discussing fortification of the shores of the bayou, in part to protect a nearby community pool, Marshall said. “We were very confident that this would be handled by the owners association,” she says.

Years later, she says, a few residents campaigned against the project. And when the coastal protection plan was put to a vote in 2019, it was decisively rejected.

“We understand why Mr. Welsh and Ms. Marshall are not happy that the association [members] did not want to go into debt, ”explains Dylan Russell, lawyer for the association. “But that’s the decision they made.”

The couple sued the association in 2020, claiming they had an obligation to maintain common goods between their home and water. The association argued that the couple should have taken legal action after buying the house in 2013 rather than waiting seven years, and that the statute of limitations for legal actions had expired. The couple’s attorney said the association appeared to want to fix the bank, and it wasn’t until they abandoned the plan in 2019 that a cause of action was available.

A district court judge dismissed the lawsuit in 2021. The couple are appealing the decision. Marshall and his lawyer, Mitchell Katine, say they are optimistic the judge’s decision to dismiss the case will be overturned on appeal.

“We weren’t naive when we bought the property,” she says. “We have studied the declaration documents, and the owners association is responsible.”

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