What is an HOA? A Guide to Homeowners Association Fees, Rules, and Risks

For over 75 million Americans, homeownership includes a critical third party: the Homeowners Association, or HOA. While these organizations promise maintained amenities and protected property values, they also wield significant power over residents. Based on our experience assessment, the key to a positive HOA experience is rigorous due diligence before purchase. Failing to thoroughly review an HOA’s financial health and governing rules can lead to unexpected costs and significant legal friction.

What Exactly is a Homeowners Association (HOA)?

A Homeowners Association (HOA) is a legal entity that manages a community of homes, such as a condominium complex or planned subdivision. When you buy a property within its jurisdiction, you automatically become a member and are contractually obligated to abide by its rules and pay its fees. HOAs are typically run by a volunteer board of directors composed of fellow homeowners. Their authority comes from a set of binding documents, most notably the Declaration of Covenants, Conditions, and Restrictions (CC&Rs), which can be over 100 pages long and dictate everything from architectural standards to pet policies.

What Should You Ask About HOA Fees and Financials?

The monthly HOA fee is just the starting point. These dues, which can range from a few hundred to several thousand dollars in upscale communities, cover shared expenses like landscaping, pool maintenance, and building insurance. However, experts advise looking deeper.

• Review Fee History: Ask how much the HOA has raised its dues over the past five years. Steady increases of 3-5% may be manageable, but sudden double-digit jumps can indicate financial trouble.
• Understand What’s Covered: Determine exactly what the fees include. Does it cover water, trash, or exterior building insurance? Or is it solely for amenity access?
• Scrutinize Reserve Funds: A critical step is to study the HOA’s reserve fund, which is savings for major future repairs like roof replacements or road resurfacing. If the reserve fund is below 70% of the required funding, the association is considered “under-reserved,” increasing the likelihood of a special assessment.

A special assessment is a separate, often large, fee levied on all homeowners to cover an unexpected expense or a major project not funded by reserves. Buyers who budget for a $500 monthly fee can suddenly face a one-time bill of $10,000 or more.

How Can HOA Rules and Fines Impact You?

The CC&Rs outline a schedule of fines for violations, which can be a major source of conflict. Homeowners have been fined for infractions as minor as:

• Leaving a trash bin out overnight ($75).
• Parking a work vehicle in the driveway ($100 per day).
• Installing unapproved landscaping or paint colors ($500+).

These fines can accrue daily, turning a minor violation into a debt of thousands of dollars in a matter of weeks. Before buying, request the HOA’s violation-fee schedule to understand the potential financial penalties for non-compliance.

What is Your Due Diligence Checklist Before Buying?

Treat the HOA vetting process with the seriousness of a forensic audit. Your checklist should include:

1. Read the CC&Rs Thoroughly: This is the most important step. Look for clauses that allow the board to levy unlimited fines or call for special assessments.
2. Request Meeting Minutes: Reviewing recent board meeting minutes can reveal ongoing disputes, upcoming projects, and the general tone of the community.
3. Ask About Pending Litigation: Lawsuit involvement can be a major red flag and may lead to special assessments to cover legal fees.
4. Understand the Collection Process: Ask what happens if fees go unpaid. In some cases, associations can suspend your access to amenities like the pool or gym while late fees continue to accrue.

In states like Arizona, buyers have a statutory “right of rescission” period, often 10 days after receiving HOA documents, to cancel the contract for any reason, including concerns over fees.

Thoroughly investigating an HOA is not optional; it is a essential part of the home-buying process in a managed community. By asking detailed questions and reviewing all documents, you can make an informed decision and avoid becoming part of an HOA horror story.