In many communities there exists a homeowner’s association (HOA) that has varying responsibilities. Generally, at minimum they are responsible for common area maintenance, trash removal, etc. However, they could be maintaining playgrounds, a club room, a pool, tennis courts, and many other things. When under contract to buy a new home in a community with an HOA, the contract will specify how long the seller has to get you the HOA documents and how long you have to respond to them, if need be.
In a very litigious area like the DMV, these HOA’s could be in the middle of litigation with a developer, contractor, or HOA members. Normally, the HOA should be notifying it’s members of litigation and according to disclosure laws they are required to notify you (the Buyer).
This discovery whether by the seller’s disclosure, your agent’s investigation, your investigation or your lenders investigation will lead to many questions. Is it a serious suit (costly with a sound basis) or is it a frivolous suit? Does the HOA have adequate insurance to cover legal fees and any award? If not, what does the association’s reserves look like and will there be heavy assessments to cover the costs of the suit?
When searching for answers to these questions you will likely not get them from the HOA or seller. The HOA will not give it to you directly as you are not a member of the HOA, yet. The seller will likely not be given the information from the HOA to give to you, because the information is covered by the confidentiality rules known as “attorney-client privilege”, and the association not the members is the entity that is the client.
So what are you left to do to get this important information about the strategies, cost, prognosis and legal fees of this litigation? Well whatever is public record, such as pleadings, motions, orders, you can certainly read if available in your jurisdiction. Also, the amount and type of insurance the HOA has may be in the HOA documents or can be obtained through the seller. With research you may be able to take an educated guess to the severity of the litigation and the exposure an individual HOA member may have.
One of the biggest problems with this situation is that many lenders are weary of lending in these situations where there is a degree of uncertainty and where the HOA may have a large exposure that is not covered by insurance. One thing you can do when ready to submit an offer on a property is have your agent find out what is it’s HOA’s legal name.Then you or your agent can do a search of the local courts about whether there is an active case. The more information you are armed with the better as this is your home or investment and the leg work on the front end helps shield you from potential financial exposure, wasted money and time, and headache on the back end.
Please let me know if you have been through a similar situation. Buyers, Sellers, Lenders other agents all have varied and fascinating stories and I would love to hear yours. As always, if you have comments, questions, need advise, or just want to reach out to me, please comment, email or call me. I hope everyone had a Happy Holidays and has a Happy New Year!