What is a Homeowners Association?
A Homeowners Association, or HOA, is a formal organization within a neighborhood subdivision, planned community, or condominium which makes and enforces rules for the properties within, as well as their residents. If you decide to buy a property that is governed by a Homeowners Association, you will most likely be required to pay monthly fees.
It’s a good idea to check whether there are mandated HOA fees before you buy a home, as those monthly payments can really add up! Oftentimes, the required dues amount to a few hundred dollars a month, but there can be instances in some cities with a high cost of living, or in high-end areas, where HOA fees may even reach into the thousands.
While most people know the basics of what a Homeowners Association is, they may not understand in detail exactly what they do, or what it is that the money they’re paying is going towards. HOA fees, especially if they are steep, can be off-putting to buyers because they don’t feel like it’s a smart way to spend their money. It’s also common for HOA fees to break through people’s budgets, meaning that they would have to look for a house that comes in below budget in order to account for the required dues.
What Are You Paying For In a HOA?
Homeowners Associations are composed of and run by members of the community and are usually established as a way of enforcing rules and regulations for properties within the jurisdiction. Typically, an HOA will have a set of rules that need to be followed by homeowners. Each jurisdiction and its individual association will have different guidelines (usually outlined in a document known as the Declaration of Covenants, Conditions, and Restrictions). While the rules will vary depending on the HOA, typical guidelines generally include landscaping regulations like limitations on types of fencing allowed as well as regulations that outline changes that can be made to the external appearance of a home (such as paint color). HOA fees will also cover the necessary maintenance of any community areas, such as pools, recreation rooms, or gardens.
Typically, the most appealing aspect of an HOA is that they are responsible for maintaining all community areas, which is why they are often associated with apartments and condominiums. High HOA fees often come with community areas that need lots of maintenance, but are available for all residents to use and can be an appealing aspect when buying a new home.
Voluntary vs. Mandatory Homeowners Associations
A mandatory HOA is precisely what it sounds like. If you join a community governed by a mandatory Homeowners Association you don’t have the choice to opt-out of paying. You will be required to sign a legal contract and pay the fees each month, and if you refuse to do so, you can find yourself in some trouble. The majority of HOAs will be mandatory, but you may run into a situation where there is a voluntary Homeowners Association.
For fairly obvious reasons, most HOAs are not voluntary because they have no way of enforcing rules and regulations if no one has signed a contract. Voluntary HOAs are more like a Community Association. They work together to protect the community, improve the area, protect property prices, and hold events such as block parties. The key difference is that, since no contract has been signed, there is no enforcement; it’s strictly on a voluntary basis.
Pre-existing vs. New HOAs
If you are buying a new property with a pre-existing HOA, you should be made aware of it before you close on the home and know the requirements in order to make an informed decision about whether or not you want to pay fees and be governed by the HOA. However, what happens if you already own a property prior to the formation of a Homeowners Association, and one is set up in your jurisdiction after you purchase your house?
In short, if you bought your home before the formation of an HOA, you cannot be forced to join if a new association is started. There is no way for anyone to make you sign the contract, and you didn’t agree to it during the home buying process. Therefore you are not mandated to pay the fees on a newly formed HOA.
Can You Opt-out of a HOA?
If you live in a community with a voluntary HOA, the good news is that you can opt-out. While you are not mandated to join, you may not receive the benefits that come with Homeowners Association inclusion. However, if you choose to buy a property in a jurisdiction that has an established mandatory HOA, you will not have the option to opt-out. You will have to take the membership seriously, follow the rules, and pay the required fees.
The bottom line is, if you do not want to pay fees to a mandatory Homeowners Association, you should look for a home in a different area.
If you already own a home where fees are due, but experience financial hardship and are unable to pay, it’s in your best interests to call a meeting with your Homeowners Association board and discuss your situation. There may be a chance that fees will be waived for a period of time in order to allow you to get back on your feet financially. Do not simply default on the payments, as you are bound by contract to pay them, and your HOA can come after you for money that you owe.
It should also be noted that HOA dues can be increased, and usually do get more expensive annually. The HOA needs to collect enough money to cover its annual costs. If they don’t receive high enough payments, they won’t be able to cover the necessary maintenance. HOAs do reserve the right to increase their fees, but the good news is most won’t do so more than once a year, and in many states, there are laws preventing Homeowners Associations from increasing dues by exorbitant amounts.
Because HOA contracts are legally binding, it’s essential to check the rules and regulations before you buy a home to ensure that you are willing to abide by them. You don’t want to run into problems with your Homeowners Association, as they can ask you to reverse your actions and even fine you or file a lawsuit if you refuse.
Refusing to Join a HOA Bottom Line
Paying Homeowners Association fees can be a significant expense and one that should not be taken lightly and should be factored into your home-buying budget. If you think that you will benefit from the maintenance and regulations imposed by a mandatory HOA, they can be well worth the money. However, if you think you’ll have trouble sticking to the guidelines or you don’t want to fork out the extra cash, it’s better to find a home in a jurisdiction that isn’t governed by an HOA.