What You Should Know and Do Before Buying Into Development

There are a number of precautions that purchasers should take before buying property covered by a homeowners association, according to attorney John Paul Hanna of Palo Alto, who has written several books on common-interest real estate.

First, ask for up-to-date copies of the legal documents pertaining to the association covering the property you are interested in and read them. Your realtor should provide these and the other information you request. If you do not have a real estate broker, ask the seller or the seller’s broker to dig out the information.

--Get an attorney to decipher the documents if you find they have been written in legalese. The expense will be worth it in the long run.

--The papers you review should include:

--A set of recorded CC&Rs; (covenants, conditions and restrictions). They can also be called a “declaration of restrictions” or an “enabling declaration.” All restrictions on your lifestyle and your ability to modify your home will be included in that document.

--The bylaws of the association. This tells you how many officers are on the board, when meetings and elections take place, how voting is conducted and a number of other details that will be important as you decide how you want to be involved in governing your association.

--The articles of incorporation. If the project is not incorporated, you could run into devastating liability problems down the road.

--The rules and regulations. These govern the common areas of the development, such as the swimming pool or tennis courts.

--The architectural guidelines. These will be of particular interest to you if you ever want to remodel or add on to your home.

Second, ask questions. By law, certain disclosures have to be made to prospective buyers. Important queries are: Is the association involved in any lawsuits? Are there substantial numbers of owners delinquent in paying their assessments? Is the association suing the developer for construction defects or budgetary deficiencies?

--Get a copy of a current association budget and recent financial statement. Examine it carefully yourself or take it to an accountant who specializes in homeowner’s associations.

Make sure the association is solvent and that it has adequate reserve funding (conservative estimates are that 20% to 25% of the budget should be set aside for reserves).

--Take a close look at the property and amenities of the development. How well are common areas maintained? How old are the units and when will major repairs need to take place? If you buy into a project that is 10 years old and the roofing is estimated to have a 10- to 15-year lifespan, you could get hit with a major special assessment three years down the road if there are not adequate reserves built up to cover roofing replacement.

--Knock on some doors. Ask neighbors how they like living there and what issues are currently hot topics in the association. Are assessments about to go up? Are there constant disputes and complaints between neighbors? Talk to a board member or two and try to get an honest assessment of how things are going for the association.

--If you are buying into a new project, find out how successful it is. Is it selling well and meeting the developer’s projections? Does the developer have a good track record on maintenance work and follow-through? Is he well-financed or operating on a shoestring? Will the bank take over if he does not sell all the units within a certain period of time?

The list is long and the information often intimidating in scope and detail. But experts say that being well-informed about what you are getting into can save you money and aggravation in the long run.

How many people actually read the fine print and find out about the future of the association before moving in?

“Probably not nearly enough,” said attorney Hanna.