Buying into an HOA with your eyes wide open!

“But the question is, are you still the master of your domain?” Jerry Seinfeld

What am I

buying

into? Rules…

Loss of Freedom?

Reserve

Studies

???

Unlicensed

&

Unregulated

HOA Management

Companies!

The Financial Risks??

&

Special Assessments!

Who does the

HOA attorney

represent?

August 2015 Arizona/First Edition

I thought it was

carefree living!

“Sweet Fancy Moses!” Jerry & George

Disclaimer: The contents of this report are intended to convey general information only,

there may be other issues not mentioned. The information is not intended to be, and

should not be relied on as legal advice in any circumstance.

Prepared by HOA Savers LLC

2

Introduction

A Guide to Help Buyers with HOA Due Diligence

“That’s a shame.” Jerry Seinfeld

The information contained in this report is to help you learn about HOAs. The recommenda-

tions are especially important if you are buying into a condominium/townhome community

(due to the amount of HOA maintenance and expenses). I learned this information the hard

way, thru experience. My passion to learn more prompted me to investigate other HOAs, take

classes, follow the news, trips to the courthouse, network with others in the US that have the

same passion. I discovered that many of the problems are commonplace. I started a website to

help people living in HOAs, prepared reports to compare values, dues etc. This report is by far

the most significant report to date.

This report gives birth to a new generation of educated HOA buyers. As more educated buyers

become homeowners, we can eliminate homeowner apathy and get owners involved, all know-

ing the issues that come with being a part of an HOA...but most importantly, doing what we can

to change the industry starting one buyer and one HOA at a time. Please share this information,

with friends, neighbors, colleagues, legislators, real estate agents etc.

The majority of HOAs are underfunded. The single most important and most overlooked issue

is that you must make sure to look at the reserve study and condition of the property to deter-

mine the likelihood that there may be a special assessment in the near future, as well as if the

community is mismanaged.

Due Diligence Definition: Doing your homework, investigating, reading, asking the right ques-

tions.

The information contained herein shall help you navigate your HOA Due Diligence, as well as

be a better informed homeowner.

3

Unlicensed & Unregulated

HOA Management Companies

“Look away, I’m hideous.” Kramer

Don’t assume like I did, that the HOA Property Management

Company (PMC) is licensed and regulated, that they will pro-

tect the homeowners. They are not licensed and regulated in

most states, including AZ. They do what the Board wants,

which may ensure they are not fired. And so far the legisla-

tors have not made the decision to license and substantially

regulate the HOA management companies as the HOA indus-

try has strong lobby groups.

I’ve seen the PMC work with the Board to interfere with re-

call and annual elections.

One HOA sued a PMC for alleged false pay requests. The

case settled and the PMC sued the employee. Said employee

went to work for a different PMC, there was no license to

revoke or suspend. No licensing entity went into the PMC to

ensure that other communities that manager managed did not get harmed as well, nor ensure

that procedures at the PMC were made to eliminate the chance that the same problem didn’t

happen again. 2012 and 2013 Maricopa Superior Court

One PMC allegedly reimbursed appx 38k to a board member(s) for almonds, vodka, air fresh-

eners, invoices from New Jersey...all seemingly obvious that they were not HOA expenses. The

new Board filed a law suit against the old Board, however the PMC has simply moved on, and

is not held accountable. 2013 Maricopa Superior Court

One HOA filed a lawsuit for an alleged 3.4 million dollars of embezzled funds by the PMC.

Once again, there is no licensing department involved in looking at the claim, revoking a li-

cense, and ensuring other HOAs were not harmed. There are no Federal regulations removing

their license to do HOA property management in the US. 2014 Maricopa Superior Court

If more owners knew that there are no protections in the law to protect them, knew that these

unlicensed and unregulated PMCs are signers on their HOA bank accounts, the owners I be-

lieve, would be more inclined to be involved and watch how their HOA money is being spent.

Laws need to be put in place that PMCs do certain things, superseding a bad board’s instruc-

tions and behavior...even if the Board will fire the PMC. The owners need protections. We need

to stop homeowner apathy, get owners involved. Your HOA money needs to be spent right in-

cluding getting multiple bids, and bids obtained independent of the management company.

When I got bids for my old HOA, they were often times 25-50% less than those obtained by the

PMC.

4

Meeting Minutes

“Yada Yada Yada” Marcy

Make it part of your purchase contract, require that the last 12 months of meeting minutes and

HOA newsletters are to be provided to you.

However note that many times the meeting minutes are scrubbed clean. Last October, I read the

meeting minutes done by the PMC, and those done by the Board Secretary. The PMC scrubbed

their version clean. The Secretary’s minutes included items that the HOA could hold the PMC

accountable for, as well as some bad behavior from particular Board members. You could also

see what issues the homeowners brought up, and how those items were addressed by the Board

and PMC. There needs to be a law that the minutes need to include everything so that owners as

well as new Board members can go in and read the minutes and know precisely what occurred

at each meeting.

If possible, I recommend attending an HOA meeting before your purchase, and talking to some

of the neighbors.

5

Monthly Dues & Special Assessments

“Not that there’s anything wrong with that.” Jerry Seinfeld

Many buyers only look at the monthly dues and buy because they are low. Don’t make this mis-

take. You need to look at the condition of the community, the finances and the reserve study

(more on reserve studies in the next section).

Really look at the community:

Is it being maintained?

Is there a lot of deferred maintenance?

Have they not been making any capital improvements?

Are their grading issues causing potential flooding issues?

Is the roof in disrepair causing roof leaks?

Look at the paint, fascia boards, roof, roads, pool area etc.

Just like a house, if it’s not maintained, the value should be less, and said HOA is not protecting

your property value! If the community is in disrepair, you are probably not paying top dollar,

but may face a large special assessment. This is also a sign that the property is being misman-

aged. If the property has been maintained well, you are probably paying more since they have

attempted to protect your value.

The condition of the community is your first sign of potential issues with mismanagement, and

the possibility of a special assessment.

The Board’s primary job is to maintain the community. They are also to plan and save for capi-

tal improvements. Too often I see the HOA Board and PMC fail.

Definition of SPECIAL ASSESSMENT: The HOA has insufficient funds to make capital im-

provements. Many times the HOA will do a special assessment that you have to pay in addition

to your monthly dues. One community in South Scottsdale had a 10k special assessment a few

years ago. The owners could pay a reduced one time large payment, or had payments options.

Now I’m sure most owners were not happy with this, however on a report I did, this community

had the biggest per sq ft increase in a ten year period out of a comparison of 22 HOAs in the

area. They increased $49/sq ft. Some HOAs in this report actual went down in value.

One more note, buyers tend to think well it’s only, for example, only $250/month...owners need

to start considering the total income of their HOA as their money. Whether the yearly income is

200k or 1 million, it’s your money to be used wisely, and spent to maintain your community.

Check the resale fees charged by the PMC/HOA; these fees are negotiated in your offer. The

Board can negotiate with the PMC to lower those fees in their management agreement. $400 is

a lot to email documents and change the name on the account.

See the next section regarding Reserve Studies, the most important tool in looking at the finan-

cial condition of an HOA, and the likelihood of special assessments.

6

Reserve Study Part 1

“You gotta see the baby.” Jerry & Elaine

Reserve studies are not required in the law. Reserve studies are not a regulated industry. How-

ever reserve studies are a useful too in helping Boards plan for making capital improvements

and the funding thereof. They are also the best tool to use to determine the financial health of

the HOA.

Obtain a copy of the reserve study, and the financials.

Look at the date of the reserve study. If it’s a couple years old, you can see if the HOA has been

making the recommended repairs. You can also check to see if they have been saving the funds

that are recommended on the reserve study; compare that figure with the amount the HOA

saved the last year or two. Be sure to look at deductions the HOA made from the reserves.

The percent funded on the report shows you the chance of a special assessment:

0-30% high risk

30-70% medium risk

70-100% low risk

Look at the Cash Flow Analysis for the last couple years, making changes based on the commu-

nity not making the repairs and not saving the money to estimate how much money they should

have.

An example would be 3 years ago a reserve study was done. It’s 16% funded, equals high risk.

It recommends saving 106k per year, actual savings the last couple years 16k and 13k...you can

see the hole is being dug deeper. The report recommended improvements, none of which have

been done. The amount in the reserves is only 200k, the reserve report estimated if fully funded

they would have 900k in their reserves, they should have saved 206k but only saved 29k. You

can see where this is going. In this example, we ask a home inspector about the lack of mainte-

nance and capital improvements, he actually says, this place needs over 1 million dollars, which

would be appx 10k per owner.

In the example above, as a buyer, you know going in that you ‘should’ be faced at sometime

with a special assessment to get the property caught up after years of neglected improvements.

I’m not saying to not buy there, but you now will not be surprised with a special assessment,

your value should likely increase after the repairs are done. In addition, you may need to get on

the Board to change the management of the HOA.

FUNDED

7

Reserve Study Part 2

“You gotta see the baby.” Jerry & Elaine

Maintaining and saving are the most important roles of the Board and PMC. You can’t find eve-

rything out about an HOA before you close, but you could assume you may have current Board

members that do not want a special assessment. Too often people join the Board with their own

agenda...to stop any special assessments, to even small things like being able to dictate how the

landscaping is done around their unit.

Taking the time to try and make sense of the reserve study and financials helps you to avoid the

unpleasant surprise of a special assessment in the future.

One more item to note, there are errors on reserve studies. In one example, the reserve study

said the roof didn’t need done for another 20 years, however roofers clearly stated that the roof

paper needed replaced and that was why the community had appx 12% of their units leak in one

storm. In addition, the staircases were not listed on the reserve study but some had substantial

water and termite damage, the cost of which was not included (in this situation, the HOA con-

sidered it an HOA expense—remember to never assume who is responsible). There was also a

drainage issue that needed fixed, that caused water to enter four units during a rain storm. Look,

talk to your home inspector...ask the HOA regarding roof leaks, staircase issues, drainage is-

sues. You should know before you buy as much information as possible.

8

You are now legally and financially

responsible for this non-profit corporation.

“You wanna piece of me?” Frank

You sign away your US Constitutional Rights. You become business partners in a non-profit

corporation with all of your neighbors. And you become the guarantor on all debts, loans, law-

suits, liabilities, settlements, construction defects and disaster rebuilds. Or anything else the

board deems necessary to assess you for.

Check court records for the HOA. Look at their history on the courthouse’s website; Maricopa

County Superior Court has an easy website to use. If there are lawsuits you need more info on,

you can go to the courthouse to look at the file. If the HOA is sued and loses, you are responsi-

ble for your share of the cost.

You need a Board that makes good decisions, follows the law, treats everyone the same, doesn’t

violate fair housing laws, repairs any safety issues, and is not negligent in their duties ie. Fol-

lows the reserve study, maintains the property and saves sufficient funds for capital improve-

ments...therefore decreasing the chances that your HOA is sued.

Note that Board members commonly are not subjected to background checks. A Board member

that has lost a professional license due to drug use or dishonesty can potentially cause the HOA

to have issues with their fidelity bond. A possible result is that the HOA insurance may be can-

celled, thereby becoming high risk, with the HOA paying more for insurance and deductibles.

9

Check the Rules & Architectural Guidelines!

“They’re real, and they’re spectacular!” Sidra

Read everything! Pay close attention to the rules. You must live by their rules and make sure

before you buy, that you can do what you want with your property.

Some common items you need to check:

Do you have pets, are they allowed?

Do you have to park a car outside, is this allowed?

Does your car have to be in the garage?

Can you and your guests park in the street?

What are the landscaping rules?

What are the rules for garbage cans?

Are there rental restrictions?

Can you put a shed in your yard?

What are the rules on paint colors, screen doors, window frames?

You do not want to move in and then find out that you are going to be sent violations, fines, and

ultimately could be sued for something you may consider to be ridiculous.

If your property is a corner lot, who is responsible for the block wall, and the landscaping be-

tween the wall and the road? A friend of mine owned a house for many years and recently had

her HOA start fining her for this, requiring her to paint and landscaping of that area. This is an

example of why you need to read the CCRS. Read everything. Try to eliminate any unpleasant

surprises after closing.

Some other examples that have been in the news, found at the courthouse, etc:

Man’s truck towed from the front of his property after only a few minutes.

Real estate agent’s car towed when showing a property.

Man sued because he had some rotted wood beams on his front entrance. 2014 Maricopa

Superior Court

Elderly couple required to paint the house, friends from their church jumped into help them.

House pending, HOA delivers a big list of items to fix before closing.

Owner loses a buyer because the buyer has two dogs, rules only allow one, yet many neigh-

bors living there have two dogs. That buyer didn’t want to risk violation problems.

Owner given violation for using their garage for storage.

Elderly lady receives a violation for not parking in her garage.

Owner sued over the landscaping done to their front yard. 2014 Maricopa Superior Court

Owner gets violation for using a ladder one day to do a repair, and then this same owner

gets violation for the hose not being tidy.

Owner gets violation for having a broom on their patio.

Don’t think you can’t get sued by your HOA for weeds and not taking your garbage cans in fast

enough. Your pet could also be required to have a DNA test!

10

Look at the Collection & Violation Policies

“I mean, to be stab worthy, you know?

It’s kind of a compliment.” Elaine

Ask in your purchase contract to have the collection and violation policies.

Boards are suppose to follow these policies and treat everyone the same.

You need to know how you will be treated if you are late on dues, and break a rule.

Note that the HOA is not legally entitled to receive info from you at closing asking you to dis-

close where you work and your bank info. Put N/A. One HOA attorney said they ask for this

when you buy so they can use it later to collect. Sneaky.

Be careful if you become late on payments. Some HOAs file liens aggressively. In addition at-

torneys fees vary, and your $500 bill can quickly become $3,000 with all the attorney fees.

When you look at court records for the HOA, note how much the HOA attorney is charging.

There is a benefit to using an HOA attorney that doesn’t charge excessive amounts as the HOA

prepays all those legal fees. Should an owner file bankruptcy, the legal fees that the HOA has

already paid, are lost in addition to the unpaid monthly assessments.

Note, I’ve been told that the FCC rules supersede HOA rules regarding satellite reception anten-

nas. The HOA may be able to dictate the location.

Some Cities offer help should you need it. Always check with the City if you are being fined for

an exterior item that you do not have the funds to remedy. They may be able to offer you some

help. The City of Scottsdale has Operation Fix-It, worth checking into.

Yet I’m getting a

violation because my pool

towel hung on my patio

wall for three hours!

No help with the

Hoarder next store!

No help with the bed

bugs that came from

my neighbor’s unit!

HELP US!

11

Undisclosed Violations!

“He lives in a bubble.” Jerry

You close on your new property, move in...then get a letter that you must remove the shed or

fence around your patio...

You can be held liable for an undisclosed existing violation after closing! There should be a law

protecting a new buyer!

Try to get something in writing stating that the property is not in violation, from the PMC.

Look for anything different, such as sheds or an extended driveway slab...possibly write into

your offer ‘The seller warrants that the property is not in violation of any HOA rules; this con-

dition shall survive closing.” I am not an attorney and recommend consulting an attorney for the

best verbiage to cover you and further protections they may recommend before you buy.

12

Termites

“That’s one magic loogie.” Jerry

Find out the following:

When was the community last treated?

Who is responsible for the cost of treatment?

Is there a termite warranty?

Insurance and warranties do not cover termite damage. You need to be concerned about termite

damage in the entire community. Should there be damage, all owners pay for the repairs. If the

chemical wears off in five years, shouldn’t the entire complex be treated? One unit treating

when connected to others, doesn’t make sense to me.

I’ve been to an HOA meeting where the Board and PMC said the cost would be 18-40k to treat

the entire complex. The Board was having the owners pay themselves if they found termites, to

treat just their unit, prices ranging from $500-1000. The next day I got a bid for $7,200 which

included a seven year warranty, which is appx $150 per owner.

Always question and investigate issues yourself, confirm that the information is accurate. It can

save your HOA money, and in this case, also stop any further termite damage.

13

Insurance

“He took ‘it’ out.” Elaine

Ask for a copy of the insurance declaration page! Look at what the HOA is paying for. Look at

the CCRS, what do they say? Ask your own insurance agent for their opinion on what the HOA

is responsible for and what you are responsible for. Don’t rely solely on what the HOA or PMC

tells you.

I’ve seen incorrect info given to owners, to the HOA’s benefit. I’ve seen one HOA handling

owners differently. One owner had to pay the 5k HOA insurance deductible. One owner puts a

claim on their insurance and pays their deductible. One owner’s insurance says that the CCRS

say the HOA is responsible, so it goes on the HOA insurance; the owner had a rider on their

policy, so their insurance covered the 5k deductible on the HOA policy.

It’s important to have a rider covering you so that if a claim goes on the HOA policy, and the

HOA makes you responsible for the deductible (could be 5k, 10k or more), that your insurance

will cover it.

In addition, I’ve been advised that an owner should have a yearly written plumbing inspection

to verify that they are maintaining the plumbing fixtures so that they don’t have a claim denied.

You definitely want to ensure you are covered all around.

I’ve also seen an HOA tell owners they are responsible for the walls in, yet the CCRS require

the owner to notify the HOA of betterments as the interior is covered by the HOA, and that is

indeed what they are paying for per the HOA insurance declaration page.

Be wise and do your own research.

14

Hidden costs!

“Giddy up!” Kramer

You are buying a single family home...are you checking to see who is responsible for the roads?

Also are you checking to see if there is a special tax district for roads, lighting etc? Why do they

have these? Well the Counties, Cities, Builders and/or the Developers are happy to pass the cost

onto the buyers.

See more on special tax districts in the next section, the ones that they don’t want to do.

15

Special Tax Districts instead of an HOA

“You a veddy veddy bad man.” Babu

Shouldn’t consumers have an option to buy a new home that is not in an HOA? There is a way

to do it. In Gilbert they have eleven Parkway Improvement Districts (PKID). The City main-

tains the common area, the owners are taxed on their property tax bill. No HOA, and none of

the problems that come with an HOA.

There is a PKID Study on www. HOASavers.com. It shows that the values are often times

greater in the PKID communities and most of them pay less by not having an HOA.

Many of the new construction communities are charging $80/month in dues to maintain com-

mon area (no amenities, except maybe a playground). $960 a year for a play ground???

Sometimes they are allowing special tax districts to pass the cost of infrastructure to buyers, yet

they don’t seem to want to do PKIDs which give consumers a choice. Not all homeowners want

to live under the rules of an HOA.

16

Financing Issues

“These pretzels are making me thirsty.” Kramer

If there is no financing available, it will affect the value of your property. Many condos are not

approved for FHA financing. Lenders check the owner occupancy rate but a lot of PMCs don’t

want to track it accurately. A second home counts as an owner occupant, but too often the PMC

only tracks onsite vs offsite addresses. If there are 15% or more owners 30 days or more delin-

quent, that also affects financing. Sometimes the lender will do a loan, but require a higher in-

terest rate. One lender told me that there are a couple lenders that have a confidential list of

black listed communities!

Lenders currently do not look at reserve studies. Should they start too, they’ll realize that is the

best indicator for determining which communities to loan on. Why would a lender want to loan

on a property that is severely underfunded and in disrepair, knowing that the buyer may be

faced with a large special assessment? It’s best that HOAs start managing themselves better.

That starts with you, the owner coming in educated on the HOA issues.

17

Who does the HOA attorney represent?

“You can stuff your sorries in a sack mister” George

If the HOA attorney has a policy to not sue PMCs, to me they appear to be a fiduciary who,

contrary to the obligation and absolute duty to act for the benefit of the HOA exploits the rela-

tionship for a personal pecuniary benefit. We need a law requiring that HOA attorneys are to

represent the HOA 100%, including holding the management company accountable for their

actions.

After approximately seven years of representing an HOA, it was discovered that the PMC had

made a few errors. When I brought this up to the HOA attorney, it was only then, that they dis-

closed that they would not sue management companies. So all thru out those seven years, only

the PMC and HOA attorney knew of this arrangement. Here are more examples of issues:

An HOA attorney teaches free lunch and learn classes to the PMC. I witnessed jokes and

laughter about an HOA that lost money due to insufficient insurance coverage at one of

these classes.

A Texas CAI attorney wrote an article I found online telling the PMC how to protect them-

selves from their client, the HOA. She encouraged them to have indemnification clauses in

their management contracts! So...if the PMC is negligent, the HOA pays to defend them!

But that attorney claims to represent HOAs.

I’ve not seen an HOA attorney produce an addendum for Boards to use and include with

their management contract adding in protections that are missing in the law.

I’ve heard a couple attorneys tell PMCs to protect themselves when Boards don’t follow the

reserve study (which we know harms the community), by simply noting it in their file. Wait,

the client, the HOA would like better protections from their attorney! Shouldn’t someone

like the attorney or PMC notify the owners yearly of this problem! I bought into one such

HOA after years of what I consider to be neglect and mismanagement.

In class an attorney admitted that the HOA attorneys decide how to treat a homeowner

based on the likelihood if that owner would sue or not! Shouldn’t all owners be treated the

same and fair?

Shouldn't the HOA attorney and PMC not be lobbying together! That’s a conflict of interest

in itself. It protects the HOA if PMCs are licensed and regulated, yet they lobby with the

PMC to keep the PMC self governed.

A homeowner posted a review on the PMC’s Facebook page. The homeowner then received

a threatening letter from the PMC’s attorney. But guess what, said attorney represents the

HOA...a conflict of interest, how can he fully represent the HOA in the event the PMC does

something wrong that harms his client, the HOA?

The HOA attorney is suppose to represent the HOA. Many times it appears they represent the

Board. It also appears there is a conflict of interest due to their relationship with the PMC, and

being unwilling to hold them accountable when the PMC harms an HOA, at least with one firm

that I am aware of. Make sure your HOA attorney does not have a exclusion in their representa-

tion of your HOA. If they do, find one who represents the HOA 100%.

18

Laws & Education Needed

“No soup for you.” Soup Nazi

As an owner, you have few rights. You get to vote in Board members, go to open meetings, and

do a petition to recall the Board member(s). However I’ve seen those few rights interfered with,

blocking owner’s rights. If you are lucky, you have a Board who cares about your input and

makes good decisions.

If you have problems in your HOA, here are some options:

Sue

Suffer

Sell

If it’s CCR related, you can pay to file a complaint with the Department of Fire Building

& Life Safety.

If the HOA won’t fix a safety issue (which is an HOA responsibility), you can call the

City and sometimes they will make the HOA take care of the problem. I know one owner

who had a hole in her living room wall for a year, and another with a rotted patio beam

for nine months, both achieved a resolution with the City assisting.

Other than that, there is no help from the Attorney General or Dept of Real Estate. There is no

licensing department to handle complaints with the PMC. Remember the PMC is not licensed

or regulated, so there are no fines, no revoking or suspension of PMC licenses, there are none.

Education is needed for legislators. They need to stop listening to the lobby groups, and start

listening to the owners. Approximately 25% of the population lives in an HOA and we have

little options and little protections in the law.

Legislators need to make laws to protect the public. Some suggestions are included thru out this

report, however there are so many more substantial regulations that need to be done. You get

your nails done, they have a license. You get a home inspection, they have a license. You have

someone’s name on HOA bank accounts, literally millions/billions of HOA funds, and these

companies do not have any license or regulations. There is something very wrong with the

HOA industry.

19

Legislative Issues Part 1

“Cantstandya” George’s high school teacher

There are many legislative actions that would be beneficial to protect owners living in HOAs,

and promote positive changes in the HOA industry. There are numerous ways, some ideas are:

Dept. of Building, Fire & Life Safety

Give the Dept. of Building, Fire & Life Safety the right to handle complaints regarding the

PMC, and put in place procedures to protect the public. ARS 41-2141 says “It is also the pur-

pose of the department to establish a procedure to protect the consumer of such products and

services, including the owners in condominiums and planned communities as well as the renters

in mobile home park communities.” Why are they not being permitted to take action?

HOA Property Management Companies (PMC)

There should be licensing and substantial regulations, similar to real estate agents, including au-

dits.

There should be a law that PMCs do certain things superseding a bad board’s instructions and

bad behavior. Failure to comply resulting in fines and suspension or revocation of their license.

Should an HOA be self managed, the Board must follow these same requirements or be subject

to fines, and be held personally liable, thereby the owners can remedy this without suing their

HOA.

Tell owners the truth about insurance etc.

Abide by all laws, including open meeting law.

Notify owners yearly on the Reserve Study progress, and point out if it’s not being followed,

and not improving yearly. An outside professional company must do the reserve study, not

the PMC or Board.

Not reimburse Board members for items that clearly are not HOA related; PMC should be

held liable to reimburse the HOA. Owners should be able to immediately remove a Board

member in this situation. PMC must notify the owners of any wrong doing.

Obtain multiple bids, and require the Board supply a minimum of one bid of their own. All

bids to be kept in a file as they are subject to an audit by the licensing dept and/or owners.

All cases of suspected embezzlement to be reported to the licensing department, and the po-

lice. Any disciplinary actions to be publicly noted on the license of the individual and PMC.

Require all invoices, financials, bank statements and meeting minutes to posted on a com-

munity website for all owners to review monthly, plus reserve studies and audits.

Bank to mail bank statements directly to all Board members.

Meeting Minutes to be detailed.

Reserve studies should be mandatory every three years, and if severely underfunded (under

50%), yearly.

PMC should not be allowed to add indemnification clauses in their management contracts

requiring the HOA to pay to defend them.

20

Legislative Issues Part 2

“Cantstandya” George’s high school teacher

HOA attorneys should represent the HOA 100% and be obligated to hold PMCs accountable on

behalf of their client, the HOA; they must also treat all owners the same and fair.

Until said time that the PMC is licensed and regulated, there should be a law that they can not

be on the HOA bank accounts.

Board members must have back ground checks and are not eligible to serve on the board if they

have lost a business license due to drugs or dishonesty, and/or have criminal records.

Owners should have the right to petition and then vote to change the PMC and/or attorney.

Do not allow Boards to take loans out on the property, or at a minimum, require an 80% approv-

al by a vote of the owners.

Do not allow Boards to use the HOA attorney to fight homeowners in regards to election and

recall issues. If a Board member(s) want to use an attorney, they must get their own attorney

and pay with their own money.

There should be term limits; such as no one can be on the Board more than three years in a row,

and must be off one full year before serving again. All terms to be one year only.

Revise current statutes so all petitions are 25% of the membership (all owners can vote) so there

is no way the Board and attorney can create more lawsuits by fighting over the definition of

‘eligible’ to vote. Owners don’t know who is eligible to vote, it’s confidential information.

Make it clear that the PMC has a fiduciary relationship with the HOA.

PMC shall also notify owners if the Board is taking any actions that puts the HOA at risk of a

lawsuit. Possibly require the HOA attorney to notify owners.

Require Cities to report all cases to the licensing dept when the City is called upon to help own-

ers that are calling for help since the HOA is failing to repair a safety issue. Licensing dept

should keep records of bad behavior.

Lower the transfer/disclosure fees; or require it to be paid to the HOA (the service to be consid-

ered part of managing a community). No longer allow charges by the PMC for violations, this

allows for abuse, and is difficult to audit since violations are confidential. One PMC charged

$1500 for doing 300 violations in a community with 442 houses in one month!

Owners need a place to go to resolve issues with the PMC and the Board. They should not have

to pay legal fees to fix all problems. There are too many abuses in the current HOA industry.

Please set standards that must be upheld...and give a licensing department authority to remove

the PMC and/or the Board member(s), upon proof of bad behavior.

And never make a law requiring HOAs to use a PMC, always allow an HOA to self manage.

Let Boards self manage and be held accountable with the licensing dept, same as the PMC.

21

Due Diligence Checklist Part 1

“Serenity now, insanity later” Lloyd Braun

Ask for these items before you make an offer:

Confirm all fees required to be paid when there is a sale; including but not limited to trans-

fer, disclosure, capital improvements, etc.

Ask the PMC regarding any rules pertaining to you; pets, parking, and anything else that

may be important. Ask if they’ll provide this and other documents now.

Check with your lender to ensure financing is available.

Ask for these items, to be provided by the seller, in your offer:

Copies of the last 12 months of meeting minutes and newsletters.

Violation and collection policy.

Add into your offer that the owner warrants that the property does not have any HOA viola-

tions, and that this condition survives closing.

The reserve study, financials and rules to be provided within 5 days of mutual acceptance

(the HOA resale package will come later, but these docs you need asap).

Add that the seller agrees to obtain answers to your questions in writing, if the PMC/HOA

will not provide the info directly to you, within 5 days of receiving your written list.

Ask for Board members names and contact info.

Ask for any info the lender requires to confirm financing is available.

Talk to the HOA and PMC (if possible, get the responses in writing):

Ask the PMC how many roof leaks, insurance claims, and major expenses they have had in

the last year. If applicable, ask who is responsible for the cost of staircases/porches etc.

Ask the PMC what capital improvements, if any, have been done in the last few years, and

what are they currently doing.

Ask if there are any violations.

Ask them what the insurance situation is, and then confirm on your own.

Ask the PMC regarding termites, when was it last done, who pays for treatment, and is there

a warranty. Also ask if the HOA has had any termite damage.

Who is responsible for roads?

If owner said there is no reserve study, double check with the PMC.

Ask if the HOA has taken out a loan on the community, or has plans to.

Ask if the developer/builder is still in control of the HOA. Are there any known issues with

construction, expansive soil, etc? Note, builders can change the CCRs anytime while they

are still in control of the HOA.

Who is responsible for roof repair and replacement? Ask if they are planning to change this

to an owner cost?

Confirm you were provided any amendments to the HOA documents.

Ask if they are aware of any issues that may become a lawsuit that hasn’t been filed yet; if

so what is the issue?

Ask if there are any special assessments, or any discussion on having a special assessment.

Also ask if they have had any in the last five years, and if so, ask for the details.

22

Due Diligence Checklist Part 2

“Serenity now, insanity later” Lloyd Braun

Visit the community:

Really look at the condition of the community, including but not limited to the roads, paint,

roof, fascia, pool. Visit the community at different times of the day. If there is a big storm,

visit the community to see if there are any flooding issues.

Talk to the neighbors, and attend an HOA meeting if one is scheduled soon.

Ask your home inspector to notate issues he sees in the community.

Research

Analyze the reserve study and financials. Determine the financial health of the HOA, and if

you have a high chance of facing a special assessment. You need to also take into considera-

tion the current condition of the community.

Read all of the HOA documents, rules, CCRs etc. (make sure there are no rules that will af-

fect your use and enjoyment of the property).

Check the court records for the HOA.

Check the BBB for the PMC; read the complaints and reviews.

Check if the community has any special tax district added to your property tax?

If a golf course lot; check who owns the golf course, and if it can be sold and developed.

This is an extensive list. I recommend that you

highlight the items that are important to you, and

check those. Always check the reserve study and

financials. Seek an attorney’s assistance, especial-

ly on items such as golf course lots and if the

HOA has commercial space.

If you do not want to spend your time doing due

diligence, you could obtain professional services

to assist you. Contact www.hoasavers.com.

As the public becomes more educated on HOA

issues, each HOA, one at a time can improve.

Know what you are buying into, and remember,

it’s not carefree living, you need to watch and be

involved.

My hope is that as the legislators start changing

the laws, to the public’s benefit in the future, that

I can do updated editions of this report as the in-

dustry improves.

Disclaimer: The contents of this report are intended to convey general information only,

there may be other issues not mentioned. The information is not intended to be, and

should not be relied on as legal advice in any circumstance.