HOAs: What Homebuyers Need to Know

You may recall the story of Captain Michael Clauer and his wife, May. The couple, who live in Frisco, Texas, owned their $300,000 home free and clear. But when Michael, an Army reservist, was deployed to Iraq, his wife got into a funk and failed to pay their $800 homeowner association dues. Next thing you know, the Heritage Lakes Homeowners Association foreclosed on the house, then sold it for just $3,500.

The Clauers' case demonstrates the power that homeowner associations (HOAs) can wield. In Texas, for example, HOAs can foreclose on a home without a court order. "That's more power than our local government has," May Clauer told HousingWatch. "We did not know HOAs could do that."

Understand HOA Rules Before You Buy

Like a lot of homeowners, the Clauers didn't pay much attention to the HOA's rules until they had a problem. That's why it's important for homebuyers who are thinking about purchasing a house in a community covered by an HOA to carefully review:
  • its regulations -- commonly called "covenants, conditions and restrictions" (or "CCRs");
  • its dues structure.

"You need to know what the HOA assessments are, what you are buying into and what it will cost you, " says Sandy Denton, chairman of Texas Community Association Advocates, a trade group that watches legislative action for community associations and individual homeowners.

Typically, homebuyers are given this information, but if you're not, be sure to ask for it. For good general background information, download Community Matters -- What You Should Know Before You Buyfrom the Community Associations Institute.

Find Out What the HOA Can Do If You Don't Comply

Texas is only one of many states in which HOAs have the right to foreclose on properties if owners don't meet their association obligations. In some states, HOAs even have the power to garnish wages and withhold services.

In addition to finding out the HOA's legal rights related to foreclosure, also ask about policies related to fines for running afoul of HOA rules. In some states nonpayment of fines, unlike dues, cannot form the basis for a foreclosure proceeding.

A Growing Backlash Against HOAs

The Texas legislature is currently considering a bill that, if passed, could place some limits on homeowner associations' power to foreclose on properties. Supporters of the restrictions point to Captain Clauer's story, as well as that of a San Antonio homeowner whose home was foreclosed on for owing less than $800 in assessments.

"The horror stories you hear about are pretty minimal relative to the number of associations in the state," Denton says.
"Only .12 percent of 1.9 million homes were actually foreclosed on in Texas in 2009."

Supporters of current HOA practices say that abuses have been exaggerated and don't represent the majority of homeowners' experiences with HOAs, in Texas or nationwide. In a national survey of community association residents conducted last year by independent research firm Zogby International, more than 70 percent of community residents said that they were satisfied with their association experience, and 87% opposed additional government regulation of their community associations.

Impairing the ability of HOAs to take action against a few bad apples would be a disservice to the vast majority of homeowners who enjoy amicable relationships with their associations, Denton says. Plus, it would likely raise HOA dues, causing more expense for homeowners.

"If my neighbor doesn't pay an assessment," Denton says, "I have to pay more to cover it."

After all, people buy into a community because they want to live in the vision that the developer created. You need a mechanism -- the HOA -- to make sure these funds are paid to keep that vision alive. If the development is not cared for and allowed to deteriorate, that ultimately affects your home value.

Luckily, the Clauers' story had a happy ending. They settled the case in July and got back title to their house, free and clear.

For more on home buying and related topics see these AOL Real Estateguides:

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