How to Review HOA Rules and Regulations for First-Time Home Buyers

Welcome back, fellow homebuyers!  In the last update, Adrian & Nacole successfully negotiated home repairs for their new home with the clever tips and insights of their trusty realtor, Andrew Finney.

Next up in Adrian & Nacole's first-time homebuyer journey is reviewing the homeowner association (HOA) documents, aka the "HOA Resale Package."  But what is an HOA Resale Package, and what should they look for exactly? 

Read on or watch the video below to gain valuable insights and a solid understanding of HOA documents.

What is a HOA Resale Package?

As Adrian and Nacole learn about buying their first home in Las Vegas, NV, they quickly realize that buying a home involves many steps. The numerable steps can feel overwhelming, the knowledge of the home-buying process confusing, and the skills needed to ensure success daunting. One could say, it feels a bit like drinking water from a firehouse when it'd be more helpful to sip the water through a straw.

Fortunately, Adrian & Nacole choose to hire a top-notch buyer's agent to guide them through their home-buying experience and the closing process. 

An HOA Resale Package provides crucial information about the community's rules, regulations, fees, and financial health, helping buyers understand their obligations and the condition of the community before purchasing.

So, let's unpack the definition and provide an overview of the key HOA documents contained within an HOA resale package to make it easy to understand. 

An HOA Resale Package has six essential HOA document categories. 

1.    Articles of Incorporation
2.    Notice of Pending Litigation
3.    HOA By-Laws
4.    HOA CC&Rs (Covenants, Conditions, and Restrictions)
5.    Other HOA Rules and Regulations
6.    HOA Financial Documents

Each HOA document contains crucial information that sheds insight into what it's like to live in a specific HOA, as well as the HOA's fiscal health and any pending litigation.

In real estate practice, I've found that most home buyers are more concerned with the HOA rules, by-laws, and other rules and regulations than with the other documents. Below, we'll review each of the 6 HOA document categories so you'll better understand what to expect if you buy a home within an HOA community.  

Please take the time to review the documents and ask questions. Your buyer's agent will be happy to assist you.  

HOA Articles of Incorporation 

Depending on the HOA and where you're buying your new home, the articles of incorporation may also be called a certificate of incorporation, charter, or corporate charter. This document establishes the legal formation of a corporation.

Usually, the corporation that forms a homeowners association (HOA) is a non-profit organization bound to applicable state and federal not-for-profit laws.

The HOA articles of incorporation detail:

  1. Name of the corporation (HOA)
  2. Purpose of the corporation (Homeowners Association)
  3. Location and duration for the corporation. 
  4. Membership 
  5. Board of Directors
  6. Powers of the Corporation 
  7. Conditions for a Dissolution of the Corporation 

HOA Notice of Pending Litigation 

Inside the HOA Resale Package, you'll receive notice if an HOA has any pending litigation (lawsuits) against the HOA, along with the status of any HOA-initiated litigation. 

If any litigation is pending, the details of the law firms will be listed, along with instructions on how to contact the law firm with any questions. 

Note: In most cases, realtors/ real estate agents ARE NOT attorneys. If you have legal questions, please feel free to contact the legal firm on record or seek counsel from an attorney of your choice and at your expense. 

HOA By-Laws 

As Adrian and Nacole dive deeper into the mysterious realm of HOA rules – a labyrinth of do's and don'ts designed to keep neighborhood harmony intact comes into view.

At this point, it can be easy to confuse HOA By-Laws with HOA Covenants, Conditions, and restrictions (CC&Rs). 

Fortunately, demystifying the difference between the terms is simple when we consider the purpose of the by-laws vs. the CC&Rs. 

The HOA CC&Rs are like a rulebook for living in the community.  Said another way, it's like the "what" are the rules side of the HOA documents.  

On the other hand, the HOA By-laws govern "how" the HOA operates and the information needed to run the HOA as a business. Practically applied, the HOA by-laws detail "how" the rules (CC&Rs) are applied. 

HOA Bylaws usually include:

  1. The frequency of HOA meetings
  2. How meetings are conducted
  3. The duties of the board of directors and various offices of the HOA
  4. How many people may sit on the board
  5. Membership voting rights

Homeowner Association CC&Rs 

Adrian is specifically interested in the rules that govern the homeowners' association. So, let's review what HOA CCRs are and what they address.  

Homeowner association CCRs are a declaration of the HOA's Covenants, Conditions, and Restrictions (CC&Rs). This declaration "is a recorded document setting forth the majority of the powers, rights, and responsibilities of the association and its members." Source

CC&Rs commonly contain:

  1. Assessment obligations
  2. Homeowner maintenance responsibilities 
  3. Architectural control powers
  4. HOA enforcement authority
  5. Dispute resolution
  6. Insurance requirements
  7. Property use restrictions

As Adrian and Nacole discovered, HOA rules can vary widely from one community to another. From restrictions on exterior paint colors to limitations on pet sizes, HOA rules can vary widely. Please take the time to ensure the HOA rules align with your preferences during the HOA review period, if applicable.  (In Nevada, a buyer has 5 days right of recession from the date of receipt by the buyer's agent.)

While respecting these rules is essential, Adrian and Nacole learned they can also provide valuable benefits, such as ensuring a harmonious living environment and preserving property values through practical rules.

They were pleasantly surprised to discover the significance of the Certificate of Liability Insurance. This document provides essential coverage for common areas and amenities within the community, offering peace of mind to residents like them.

Take  Note of "Other HOA Rules and Regulations" 

Other rules and regulations of an HOA may be created as an amendment to the original HOA By-laws and Homeowner Association CC&Rs.  This can occur when a previous rule or bylaw is outdated or if the majority of the HOA votes to adopt a new measure or to update a regulation that does not violate the original provisions of the specific homeowners association.  
A few examples include adopting a new community speed limit, setting predetermined dates for community garage sales, or updating parking restrictions to ensure all HOA residents park in their driveways or garages. 

HOA Financial Documents 

Before buying into an HOA community, ensuring the HOA is properly managed and has financial liquidity is critical. 
Perhaps one of the best ways to size up a homeowners association is by diving into the financials of the HOA community you're considering. 
But, what are HOA Financial Statements? 
"An HOA financial statement is an official record detailing the community association's financial activities. This is one of the main ways to determine a community’s financial health.  Specific items that must be included in your community financials depend on state regulations and community bylaws." source
Generally, HOA Financial documents available to prospective homeowners and homeowners include:
  1. Balance Sheet
  2. Statement of Income
  3. Account Receivables 
  4. Bank Statements
  5. General Ledger showing all account activity
  6. Balance of Reserve Funds

NOTE: The HOA may not provide some financial records due to privacy regulations or if the records contain confidential information of other homeowners within the HOA.

Cracking the HOA Code

Next up on our list is understanding the significance of the HOA aspect, exploring preferences for keeping HOA fees to a minimum or seeking out communities with higher than average HOA fees by recognizing the subjective nature of specific homeowner associations and what the HOA fee includes.

Adrian and Nacole discovered that these fees are used to cover a wide range of expenses, from maintenance of common areas to amenities like swimming pools and fitness centers.

While HOA fees might add to their monthly expenses, Adrian and Nacole realized they also benefit from hassle-free maintenance and access to community amenities—which they felt was a worthwhile investment!

Like Adrian and Nacole, you can evaluate the affordability of HOA fees and factor them into your budget by clarifying what's most important to you about your new home and community before viewing homes. 

Navigating HOA Regulations

As Adrian and Nacole navigate the HOA regulations, let’s emphasize the importance of understanding HOA responsibilities and seeking approval for architectural changes.  If you plan to make alterations to the existing residence, add a structure, or change paint colors, please identify and review the HOA rules, policies, and processes within the HOA resale package.

Adrian and Nacole gained valuable insights into the importance of HOA financial stability, tapping into Andrew's inspiration from Marcus Lemonis' business strategies. Through in-depth discussions on reserve studies and funding plans, they uncover the inner workings of HOA management, ensuring a clear path to long-term solvency.

The Reserve Study provides valuable insights into long-term financial preparedness by validating adequate funding for future maintenance and repairs within the community while assessing how well HOA management operates to ensure near and long-term solvency.

Getting Acquainted with Special Assessments

It's worth noting that special assessments imposed by HOAs for unexpected expenses or major repairs can occur. While special assessments are relatively rare, they can catch homeowners off guard if they are unprepared. 

I taught Adrian and Nacole how to check the HOA's financial health and reserve fund. This will give them a good idea of whether special assessments might be in the cards down the road.

VA Loan Considerations for Buying a House in a HOA

For active duty and US Military veterans like Adrian, please note how VA loans and HOA rules and fees fit into the VA loan home-buying process.

VA loans have fantastic perks like no down payment and great interest rates. But it's crucial to ensure the property aligns with VA appraisal and eligibility standards, which may involve adhering to HOA regulations. Please review your HOA considerations with your buyer's agent and mortgage loan officer

While it might initially seem overwhelming, like Adrian and Nacole, with the right guidance and knowledge, navigating HOAs and the home-buying process can be a breeze. By understanding HOA rules, deciphering fees, and staying proactive, you'll set yourself up for success in your home-buying journey.

Final Thoughts

From Covenant Codes and Restrictions to Financial Documents, Adrian and Nacole delved into a plethora of HOA documents, each offering unique insights into community living and financial management. Understanding these documents ensures clarity and transparency in what to expect from your HOA moving forward.

Just a friendly reminder, the HOA documents provide valuable insights into the rules and regulations governing the community, as well as the financial health of the HOA.

By carefully reviewing these documents with the help of a trusty realtor, Adrian and Nacole gained the knowledge, comfort, and confidence to make a well-informed decision before purchasing a home in an HOA-governed community.

What twists and turns do you anticipate will come their way next? Find out in the next blog!

Whether you're a first-time homebuyer like Adrian and Nacole or a seasoned pro, don't hesitate to contact me if you have any questions or need expert advice—I'm here to help you every step of the way. 

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