When you purchase a condo, townhouse, or a home that belongs to a planned development, chances are there is a home owners association (HOA).
Ideally speaking, each HOA has a board of directors. One of the board's responsibilities is to determine what the monthly HOA fee will be for each type of unit each year.
In a simplified explanation, the monthly HOA fee is used for two things:
- To cover the association's operations budget. This can include landscaping, common area maintenance, and paying the salary for the resident manager.
- To increase the HOA's reserves. The reserves are used to pay for more expensive things, like new roofing, painting, and spalling work.
I recently opened escrow on a townhouse. When we received the condominium documents, the Property Information Sheet noted that there was a special assessment. As it was disclosed, the special assessment is to be used for to pay for common area repairs.
After speaking with the association property manager, I was told the special assessment was triggered since there was not enough money in the HOA reserves. Since the board approved the special assessment, each owner was assessed a certain dollar amount to pay for the current common area renovations.
What does this mean for the Buyer?
To our benefit, the Listing Agent and the association property manager confirmed that the current owners paid off their assessment amount in full. This is a positive thing because that means the assessment won't be passed to next owner (although this is negotiable in the Purchase Contract). Secondly, some mortgage brokers won't loan on developments with special assessments.
-RO