Date: May 22, 2024
Recently this office received an inquiry from a consumer asking the following question:
“We’re considering purchasing our first home - a townhome - in a brand new community that has an HOA. We would like to know what kinds of questions we should ask before even going under contract; for instance, whether there are any special assessments being considered. Would you recommend calling the HOA? Any other due diligence that you’d recommend? Thanks so much for your time!”
Of course, in an ideal world, new homebuyers should know everything under the sun about their new HOA prior to submitting their offer, right? Buying a home is a huge investment, so shouldn’t prospective buyers be well-informed of what the community is like? Unfortunately, this is not always the case.
An informed buyer is a prepared buyer. Below is a list of considerations for prospective homebuyers who are considering purchasing a property located in an HOA.
1) While the buyer is not entitled to a copy of the HOA’s governing documents until they are “under contract” (i.e., the seller has accepted their offer), a prospective homebuyer can still obtain a copy of the Declaration of Covenants, Conditions, and Restrictions (also referred to as the “CC&R’s” or the “Declaration”) from the Clerk and Recorder’s office for the county where the property is located.
The Declaration will contain important information about the HOA that all buyers (and owners!) should be aware of, including;
- A list of the common elements of the community the HOA is responsible for maintaining
- A Map of the community (legally referred to as the “Plat Map”) that delineates the property boundaries, streets, and other physical characteristics of the community
- How votes are allocated to each unit/owner
- How assessments (or “HOA Dues”) are determined for each unit
- Restrictions on what an owner may or may not do with their property
A close review of this important document is highly recommended to see if the requirements set forth are acceptable to your goals and lifestyle.
2) How does the community look physically? As you are driving through, do there appear to be signs of decay? Is the siding chipping away and do the balconies appear to be falling apart? Is the clubhouse roof missing shingles? This could be an indicator of deferred maintenance and might lead to a special assessment down the road. While this shouldn’t be considered an immediate deterrent from purchasing, it should be viewed as an important indicator as to whether to make an offer on the property.
3) Consider retaining the services of a real estate broker who is experienced with HOA issues. Ask if they are familiar with the Colorado Common Interest Ownership Act (“CCIOA”) and if they are aware of any issues in the HOA that could potentially result in litigation. Lawsuits are expensive for all parties involved and could potentially lead to increased dues in the community to pay for them.
4) If you are financing your home purchase, ask your bank or lender what experience they have with completing HOA questionnaires. An HOA questionnaire is a risk-management tool banks and lenders use to aid in their mortgage approval process. Does your lender have a solid relationship with the community association manager or HOA board? Or is the bank constantly encountering issues communicating with this particular HOA in trying to obtain this information? An HOA who is unable to satisfy an HOA questionnaire request from a mortgage lender may be indicative of other internal issues plaguing the association, such as apathy or worse, incompetence.
5) Check to see if the HOA is registered with the Colorado HOA Information & Resource Center. Registration is statutorily required in Colorado, and an HOA who is not registered is unable to pursue an enforcement mechanism or file a lien against a delinquent homeowner. You may use this link to search the Division's registration database: Division of Real Estate Licensee Lookup (use the "Business Name/DBA" search field) to determine if the HOA you are considering is Active, Expired, or Unregistered.
6) Ask the current residents what their experiences are with the HOA. How do they like living there? Have they encountered many issues in communicating or working with the board? How much have dues increased over the years? It is possible to give a prospective homebuyer useful information about the community without divesting any confidential or private information to the association.
In conducting as much due diligence as you can before signing the dotted line, you can attempt to avoid any major surprises down the road with your homeowners’ association.
—
Statements provided by the HOA Information & Resource Center are provided for informational purposes only and should not be construed as legal advice. If you have questions about the effect or meaning of any of these laws, you should contact a licensed Colorado attorney.
—