How do HOAs and Covenants Work?

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Most new homes have HOAs (home owners associations) and covenants. Covenants are rules and guidelines than a homeowner must abide by in a neighborhood. HOAs charge homeowners fees to enforce covenants, maintain parts of the neighborhood, or even maintain the houses themselves. HOAs and covenants are almost always attached to condos and town homes, and many single family houses as well. If you buy an older home you may find there is no HOA, but you will still have to follow local government rules. There are pros and cons to HOAs and covenants, some people like the rules because it keeps the neighborhood looking nice, whiles others do not like someone telling them what they can and cannot do.

Why do HOAs and covenants exist?

Most cities and counties require any new subdivision have an HOA and covenants. By new I mean in the last 20 years. The local government wants new subdivisions to be nice, have similar properties, and not be a blight to neighboring properties. The HOAs help enforce the covenants and they also maintain any common areas in the subdivisions. Almost all new subdivisions will have some form of common grass, walking areas, roads, fences, etc. that are not maintained by the city or county, but are also not part of anyone’s lot. Someone must maintain that property, and the HOA is who is responsible.

The HOA will need to have people who can look for violations, account for fees, and approve any new projects. With newer subdivisions, if you want to build a garage, a shed, change your landscaping or even change the paint color on your home, you might have to get approval from the HOA. The covenants will help guide the HOA on whether they should approve new projects or paint colors.

We live in a home that was built in 2005, and our subdivision has an HOA. We are rebuilding our deck, have added a basketball hoop in our driveway and added a concrete patio and sidewalk. We had to get HOA approval for all of those projects. If we did not get approval and the HOA decided those projects were against the current covenants, the HOA could make us take out or redo the projects.

What are the basics of buying a house?

What legal right does the HOA have to enforce their rules?

HOAs are handled differently in every state, but most HOAs have the right to enforce their rules with fines. If the homeowner does not pay the fines, the HOA can place a lien against their house. If the homeowner does not pay the HOA dues, a lien can be placed against their house as well. When a lien is placed on a home, the home usually cannot be refinanced or sold until that lien is paid off. A lien can also show up on someone’s credit and prevent them from getting a car loan or buying another house.

How to qualify for a loan.

What kind of rules and regulations do most HOAs have?

Most local governments require new subdivisions to have a basic building and outbuilding requirements. The houses, lots, and outbuildings must be somewhat similar in size and design. The city does not want a 1,000 square foot ranch mixed in with a 5,000 square foot 2 story home. The city does this because a 1,000 square foot home may decrease the value of the larger home next to it. A huge shop on a quarter acre lot will most likely block the view of the neighboring houses. Crazy paint colors can also detract from values in a neighborhood. In my opinion, I also think having every house look the same can detract from values as well. I think it is good to have some restrictions, but too many restrictions make a neighborhood boring.

Most HOAs will have these basic rules:

  • Size of homes
  • Size of lots
  • Type of outbuildings allowed (there are no sheds allowed in my neighborhood)
  • Landscaping requirements (most HOAs require landscaping)
  • Proximity to other houses and lot boundaries
  • Restrictions on visible trash or debris
  • Restrictions on parking RVs, work vehicles or even outside parking for regular cars
  • Fencing requirements (type of fence and size)
  • Maintenance requirements (must mow your lawn, pull weeds, shovel snow, paint your house, etc.)

HOAs might have even more rules depending on the neighborhood:

  • Paint color
  • Type of roof shingle and color
  • Number of trees in your yard (minimum or maximum)
  • What percentage of your yard must be grass
  • How many pets are allowed and what type

Some HOAs will have as many restrictions as they possibly can, while others will have very few. When you are buying a house you should have the chance to review the HOA covenants to see what they do and do not allow.

What are the pros and cons of an HOA?

Some people love HOAs and some people hate them. The pros of HOAs are they keep a neighborhood looking clean and force homeowners to maintain their houses. If you live in a neighborhood that has really great looking houses, except for the house right next to you, it can greatly affect the value of your home. You can tell the difference between neighborhoods with HOAs and without. Neighborhoods that do not have an HOA, tend to have more outside debris, parked vehicles, and non-conforming houses. Some people love to have the freedom to park all their cars and trailers wherever they like, while others prefer a neighborhood with more restrictions.

HOAs also come with higher costs and fees, since the HOA has to charge the home owners for the service they provide.

How much are the HOA fees?

HOA fees can be as little as $25 a year (there are a few HOAs in my area that have no fees) to thousands of dollars a month. Typically an HOA will charge a couple of hundred dollars a year to thousands of dollars a month depending on what they provide. Many HOAs provide very basic common area maintenance for a neighborhood. Other HOAs may include a pool, tennis courts, a gym, security, trash, water, exterior maintenance of properties, and even insurance. Most of the extra services are provided on patio homes, town homes, or condos. It is very important to understand what the HOA will cover and how much their fees are, because it can affect how much of a loan you can qualify for.

What is a mortgage?

Can HOA fees increase and what about special assessments?

HOA fees can increase every year, but usually the HOA members must vote on any changes. I have seen a local HOA increased their fees from $100 a month to over $200 a month in 7 years. They claim they need the extra money for maintenance, even though similar HOAs in the area charge around $100 and offer more services than the HOA charging $200 a month.

HOAs must have a certain amount of reserves for repairs and maintenance. They must disclose what their balance sheet looks like and with the help of an agent you should be able to tell how healthy the HOA is. If they keep raising their fees every year, there is a good change they will continue to raise their fees.

Another big concern for people who live in a HOA are special assessments. A special assessment is a one-time fee that an HOA can charge to every homeowner. Usually the special assessments occur in HOAs where the association is maintaining buildings or a lot of land. If every condo needs a new roof, the HOA may not have enough money in reserves to pay for the roofs. They can ask for a special assessment to be placed on every property. If the assessment is voted for, everyone has to pay for that assessment whether they voted for it or not. I have seen special assessments as high as $15,000 in my area and heard of much higher assessments in other parts of the country. Something else to look out for if you are considering a town home, condo or patio home where the exterior maintenance is paid for by the HOA, is what kind of shape are the properties in? If they need new roofs, siding or paint, a special assessment may be in the works.

Are condos a good investment? 

How can you avoid living in an area with an HOA?

Even though most new subdivisions will have an HOA and covenants, that does not mean you have to live with an HOA. If you buy an older house (1990 or older), there is a good chance it will not have an HOA. If you buy a new house that is in the country, and not part of a subdivision it may not have an HOA. Even if you live in a house that is not covered by an HOA that does not mean you can do whatever you want. Cities and counties will have their own building codes and requirements for maintenance.

Most cities and counties have codes for lawn maintenance, weeds, parking, building size, etc. The government codes may not be as restrictive as HOA covenants, but they still must be followed. The government can also fine homeowners for code violations and place liens on properties.

Conclusion

HOAs and covenants have a purpose, but some HOAs go a little overboard. If you are living in a town home or condo, you also need to be wary of special assessments. Even without an HOA, you still must abide by local building and maintenance codes. Make sure you do your homework on any house you are considering buying with an HOA.

2 Comments

  1. Domenick February 5, 2017
    • Mark Ferguson February 6, 2017

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