It's a beautiful Tuesday here in Phoenix, AZ. However, it is not so pretty for some home and condo buyers. Some are finding their homeowners associations are underfunded or facing bankruptcy; This can result in large assessments being levied to cover HOA mandated costs such as maintenance, utility fees and repairs to common areas, pools, etc.
I've tried to uncover the actual numbers in Arizona... without success. However, in Florida (a some what similar state to Arizona) a poll of 500 associations resulted in scary feedback. According to an article in the Herald Tribune:
- 60% say banks and lenders holding title to foreclosed homes are not paying fees or assessments.
- 40% said they had homes in their associations vacant for over 5 months.
- Most indicated they would need to raise rates or use special assessments to cover loses.
The problem is especially pronounced in condo/town-home developments where the maintenance, utility and repair costs can be high and ongoing. A malfunctioning central AC system can cost tens of thousands to repair; Elevators, pools, roofs, landscaping and blanket insurance policies all have to be maintained.
Single family home developments can have similar expenses, especially if they have community pools and lots of common areas. Some developments include front yard maintenance, playgrounds, tennis courts, recreational buildings and other amenities that can quickly cause HOA reserves to become depleted and vanish.
At this point you are probably wondering how to protect yourself. That's a very good question. Brother Ron, my business partner and actual brother, is a fiend for information. He does a lot of probing on behalf of his client. He suggests the following:
- Contact the HOA management company and ask about the financial health of the development.
- Get the names and numbers of HOA board members and contact them.
- The Arizona Corporation Commission may have information on the HOA.
- Talk to your future neighbors.
- If you have serious concerns you may want to hire a private investigator.
- IMPORTANT: You will want to uncover any potential problems during the inspection period. The default time period for inspections is 10 days unless you negotiated a longer inspection period.
Under Arizona law, the HOA is required to provide a copy of the CC&R's covering your new home. It is very important you read it. If you have questions, a visit with an attorney who specializes in real estate law may be a good idea.
In conclusion, be proactive if the home or condo your thinking about buying is in an HOA development. Make sure and get as much of the information you request in writing. Peopletend to be a bit more forthcoming when they know there is a paper trail. Don't be afraid to walk away from the deal if it looks like the HOA is in trouble. A multi-thousand special assessment a few months down the line is a surprise you probably don't want.
Best of days to you and if you have additional questions, know we are there for you.
Gene Urban
The Urban Team at Realty Executives
602-234-5777
