An important part of your due diligence when buying a home in Carlsbad with a Home Owner’s Association (HOA) is to review the HOA documents thoroughly. Here’s why.
In the California Residential Purchase Agreement, or RPA, an HOA (or other shared interest community) is one of the important contingencies of your offer. If there IS an HOA the seller, per the contract, must provide you with a complete set of documents from the HOA during the due diligence period so you can review them. Normally escrow will order HOA documents soon after escrow is opened, and the seller typically pays the cost of these documents, unless otherwise negotiated.
HOA documents can vary significantly depending on the size of the HOA, among other factors. These may include a variety of different documents, but commonly you will see a copy of the Certificate of Insurance, CC & Rs (Declaration of Covenants, Conditions and Restrictions), Board Meeting Minutes, Rules and Regulations, financial records including the budget and perhaps the most recent reserve study, Articles of Incorporation, By-Laws, and other paperwork that is particular to that HOA (e.g., age restrictions, bill collection).
It’s not the most interesting reading, but it’s important so you understand the community you are going to be living in.
You will want to be comfortable with the Rules and Regulations in the community. Some rules can be pretty explicit and detailed, while others are not. There may be a relatively short list, or many pages of rules. Some HOAs are pretty diligent about pursuing violators of rules so it’s important that you feel comfortable with the rules of the community. If you have a problem with the HOA dictating what color you can paint your door, or that you can’t park on the street overnight, then you may have an issue with the community.
It essential to review all of the Board Meeting Minutes. These can be very enlightening and tell you more about how well the HOA operates – do they address concerns from the residents and how? What projects and improvements are they working on or planning? How do they deal with violations of the rules (e.g., parking, noise) and are fines levied?
You may not like reviewing financial records, unless you are an accountant, but be sure to take a look at all the financial records, budget, and any related documents. You want to know that the HOA is fiscally responsible, that the bills are being paid, and that the HOA has money in the reserve for improvements and repairs (e.g., new roof). You might also receive a copy of a reserve study – a reserve study is completed by an independent accounting firm, and an accountant will weigh in on the issue of whether the reserve is sufficient for the size of the HOA and their income and expenses, based on standard accounting principles.
It may not be fun reading, and there might be a lot to review, but it’s important to due your research before you make a final decision.