What can make buying a property within an HOA complicated for unprepared buyers is primarily due to buyers not knowing which documents they must have ready to file for the HOA board’s approval and documents the HOA needs to provide them before signing. In other words, documentation when buying into an HOA is what separates buyers who walk away from the home purchasing experience fully informed and excited to join a community and those who feel the pain of every single headache the home-owning process can throw at them.
The most helpful tool buyers can use is a checklist that breaks down the most important documents. As a buyer, it’s also best to think of this documentation in a two-pronged approach:
- the most critical documents you as the buyer need to supply the prospective HOA with
- and which documents the HOA board is required to provide you
The latter allows buyers the opportunity to know exactly what type of community they are joining, what issues they may be walking into with their separate property if they purchase, and what the general rules and regulations are within the HOA.
What documents do buyers need to provide an HOA with?
When buying into an HOA, most of the documentation prospective homeowners need to provide the HOA board is relatively standard material compared to most home purchases. Most of this documentation will revolve around verifying income, citizenship, and other legal parameters regarding the buyers. While some of the details within these documents might vary from state to state, validating this type of background information on prospective homeowners is relatively uniform nationwide. These documents are listed and briefly described below:
Background Check
The most standard of all documentation, the background check is provided to the HOA board to highlight or uncover any potential legal obstacles that might stand in the way of a particular buyer being approved for a home purchase.
Buyer Approval Application
An all-encompassing form that is typically covered within the background check and income verification, this application allows HOAs as well as property seller or lenders to void any transactions if the buyer refuses to meet or interview with the HOA before the sale, or if any other relevant information were to be uncovered during the background check that might inhibit the sale.
Income Verification
Another self-explanatory document, income verification documentation, ensures the buyers can financially complete the home sale. This is standard practice in all home property purchases, with or without an HOA involved.
What do buyers need to request from an HOA before signing?
Although the documentation that buyers must supply an HOA is crucial to purchasing a home, the documents that buyers need to request from an HOA before signing play an even more prominent role in dictating how smooth and informational the home buying process can be. As stated before, these documents don’t just provide buyers with legal details about the property they wish to buy and any financial or physical issues associated with it. Still, they also provide buyers with the full scope of the HOA they will be joining. Here is a comprehensive list of documentation HOAs need to give buyers before completing a home sale:
HOA Governing Documents
HOA’s governing documents are arguably the most critical documentation that prospective and current residents should access if needed. These documents provide not only a comprehensive overview of all of the rules and regulations within the HOA but also a detailed hierarchy of how the HOA’s different sects of regulations, as well as state laws, supersede and overrule each other in the event of a conflict between the board and residents. Having this information before signing is vital so buyers can understand, from day one, exactly how the respective HOA functions.
The hierarchy is as follows:
- Federal, State, and Local Laws: This is the documentation that provides buyers with a large-scale overview of what their particular state’s laws are on anything from legal matters within an HOA to any specific statutes that directly explain how HOAs, and residents within those HOAs, must abide.
- Declaration of Covenants, Conditions, & Restrictions (CC&Rs): One of the most essential and foundational components of the entire HOA structure, detailed documentation of an HOA’s CC&Rs is necessary so that buyers can understand exactly what restrictions and rules their HOA is implementing. CC&Rs work keeps a delicate balance between upholding the value of the HOA while compromising with the needs of the residents, to a certain degree. Occasionally, however, these CC&Rs might not fit the mold of what a particular buyer is interested in living under. It is in those cases that providing them to buyers prevents headaches down the line.
- Articles of Incorporation: Although typically pretty insignificant to most buyers, these documents provide the original date and creation of the HOA, as well as its intended purposes as a community.
- HOA Bylaws: These documents are essential for establishing how the HOA functions in terms of its board and how it goes about enacting the rest of the rules and regulations. These can be important for buyers to get a good look at how board member elections work, how and when they can contribute to those electoral processes, and how those bylaws could impact their home lives.
- Rules and Regulations: These documents typically cover any other regulatory issues within the HOA that isn’t covered by any of the preceding papers provide buyers with an overview of how those rules are applied throughout the community. As it goes with the rest of the documents, having this information prevents buyers from being in the dark on particular regulatory issues that they may find to be deal-breakers and prevents further conflicts that can be avoided before they ever begin.
Financial and Property-Related Documents
One of the most critical components in the documentation process for buyers is obtaining any financial records related to both the property and the HOA as a whole. Regarding the HOA, these documents, although often found within the CC&R’s and Bylaws, typically explain the dues process for how HOA members pay the association and detailed scheduling of when those dues are owed. HOAs usually have a particular schedule with which member fees are required and set aside and the ability to either change or increase those dues periodically. Buyers need to understand how that schedule and those increases work.
HOA financial documents should also include reserve fund information, which provides an analysis of the emergency budget the HOA board should be setting aside and detailed HOA budgeting documentation. These can help create a fuller picture for buyers in terms of the financial stability of an HOA before buying into it. Even if the community seems like a great fit, a financially unstable HOA that consistently changes and increases its dues structure can point to big trouble for buyers looking to avoid that type of environment.
In terms of property-related financials, buyers must obtain any fee-related documents that show money owed on the property due to the previous owners. Although one would figure that if the house’s seller owed money to the HOA or another institution, they would be financially responsible, these cases vary based on the state.
Prospective homeowners need to look to state and local laws for guidance to determine that, if signing into a home without awareness of a debt or lien on that home, whether they would be assuming responsibility for that debt. This is an area HOAs, as well as sellers, should be assisting however they can.
HOA Meeting Minutes
Although not as foundational as the other documentation buyers should request, having access to an HOA board’s meeting minutes can help buyers determine any consistent or recurring conflicts within the community they should be prepared to move in. If one were to obtain the minutes and notice constant dues-related instability on the board’s part, it could help them decide whether joining an HOA with payment issues is worth the trouble.
HOA Insurance Policies
Finally, buyers need to make sure they understand how an HOA’s master insurance policy works in an accident or damage to the property. Understanding which parties are held responsible and how it might damage inside and outside of the property would be fixed if they were to occur is precious information as well.
Obtaining these documents and evaluating whether the guidelines within them are something you feel comfortable buying into makes the entire home purchasing process within HOAs much less cloudy. Although there are plenty of considerations to keep in mind before and after obtaining and submitting these documents, they give buyers the full scope of information to help make their decision.
Download our documents checklist guide below.
