HOA – due diligence

[speaker]

I put an offer on a short sale recently and now I am playing the waiting game with the bank.

Can anyone offer some insight into how I can perform my due diligence with regards to the HOA? All of the homes in the sub-division of interest were bought at the peak. Therefore, it would be nice to know how the HOA is holding up.

Thanks in advance.

[bake]

Condo loans are tougher to get these days Speaker, here is a summary of condo requirements:

http://www.nuwireinvestor.com/articles/new-fannie-mae-condo-regulations-may-choke-condo-demand-53367.aspx

You need to get an HOA certification on the complex that will give you all the information needed. If you are working with a lender they will be able to get the cert to you. If not send me a pm and I’ll be happy to advise you on what you need to do, thanks!

[speaker]

Sorry, I should have clarified. I put an offer on a detached, SFR. The HOA in question would be one responsible for a give tract of homes.

[SD Realtor]

Speaker the process is generally as follows:

Once your short sale gets accepted and escrow opens, the escrow company will order all of the HOA CCRs, Bylaws and any other information that you need. Whatever requirements are needed by your lender to originate the loan should be ordered through escrow and you need to make sure that your loan officer orders any additional docs needed.

As you said that your home is an SFR you will not need to worry about an insurance certification from the HOA because you will be purchasing your own homeowners insurance. Again, and this bears repeating, make sure your loan officer works with escrow to get any needed information from the HOA or property management company.

With regards to the HOA CCRs and Bylaws, those usually do not get ordered by the escrow company until escrow opens after your approval is obtained by the short sale lender. Please note ordering the HOA and CCR docs is not free. In most cases these docs are paid for by the seller but in some short sale cases and foreclosures the seller will not pay and the buyer needs to pay. Furthermore in some cases the payment needs to be made up front. Escrow will contact you about payment but you need to check with your agent with regards to you or the seller paying for them.

Unfortunately until you are actually in escrow obtaining any HOA information is hard because it is private information and you are not entitled to it. Once you do order all of the docs, you will be able to review them as you see fit. Sometimes after review there are additional questions and you may need to try to call some of the officers to get answers. In some cases that will be possible and in other cases it is not. Kind of a crapshoot.

[svelte]

I think what speaker is wanting to know is if there are any lots that are delinquent in their HOA dues and if the HOA has adequate reserves for future repair and maintenance.

This info may be limited to someone who is not yet a homeowner, but there may be several ways to get at least a glimpse:

– The legal requirements of California HOAs are given in California Civil Code 1350 – 1378. Most of that is geared towards the HOA relationship with homeowners, but there is probably some good information on what the HOA is required to supply to those in escrow (I can’t remember, truthfully).

A good place to read up-to-date versions of Davis-Stirling is here:

http://www.leginfo.ca.gov/calaw.html

– You may check the HOA website, if they have one. Many times, old newsletters will be shown and they may give insight into delinquencies and/or similar problems the association has. It probably will not give financial info on the website, at least not the part accessible to the general public.

– You may want to find out when the next HOA board meeting is and attend. Technically it is probably only current homeowners who are welcome, but most HOAs would probably welcome the interest and not say anything about a prospective homeowner showing up. Again, this would probably give you insight into some of the financial info by listening to the conversation, and at a minimum will let you know what the HOA is currently concerned about. Specifics about which lots are delinquent or problem areas will be done in private meetings for confidentiality purposes.

– At some point in escrow, you will probably get a copy of the latest available annual financial report,which may be months old since they are done yearly. I would look closely at how well the major components of the HOA properties are covered by reserves. Look at Cal Civil Code section 1365 for what the HOA is required to do with yearly financials, paying particular attention to 1365.5

– Finally, find out what Property Mgt Company the HOA uses and contact them directly. They may know what they can legally give you before you are a full-fledged homeowner, and what you can expect to receive from them during escrow.

[speaker]

Thanks for the the responses everyone. The spirit of my post was to see what I can do on my end in advance to research the HOA. Therefore, your responses were very helpful.

[Author]

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