Homeowner Nightmare: HOA Dues On the Rise
Condos are appealing because they offer the promise of fewer headaches. You, the homeowner, are responsible for everything from the “paint, in.” If a pipe explodes, if your neighbor’s bathtub falls through the ceiling (Money Pit style), if there’s a termite infestation, it’s not your problem. A group called the Homeowners Association (HOA) handles it. And that’s that.
Or is it? The picture isn’t quite so clear, because the HOA is really just comprised of a group of homeowners in your condo building who are interested in running the association. They collect dues from all condo owners each month to create a fund that pays for pipe repairs, ceiling reinforcement, and termite extermination, among other things.
Everything hums along nicely unless…the HOA goes broke. If the HOA doesn’t have adequate funds, they can’t pay to fix and maintain the condo building. And since a condo building is responsible for itself, they have no choice but to come knocking on homeowners’ doors for more money.
This happened to me recently. My Portland condo building was a new development (a historic building conversion), and back in 2006 or 2007, the developer put together financial projections for how many units would sell, and how fast. Based on this projection, he determined what the dues for each unit should be in order to create an adequate reserve fund. Of course, he couldn’t have anticipated the looming recession.
When I bought my condo in 2008, my dues were $211/month. This paid for my share of basic cable TV, the fee for our property management company, landscaping, common area utilities, common area cleaning, insurance, and repairs. The other condo owners paid their share.
The problem started when condos didn’t sell as fast as the developer had anticipated. Nearly all the units have sold by now, but it’s been slow going. And if a unit doesn’t have an owner, there’s no one to pay HOA dues. That’s where the trouble started.
Once 75% of the 65 units had sold in mid-2009, the developer turned over the building to the HOA. The HOA board was elected, and they started looking into our building’s finances. They were shocked to find that the dues collected aren’t enough to cover the basic costs of running the building. We were running a deficit!
The HOA did what they could to cut costs–they renegotiated contracts and considered all options (maybe owners should pay their own cable?)–and then they voted unanimously to raise everyone’s HOA dues. This week, I received a letter notifying me that my new dues will be $227 (an increase of $16). Anticipating questions, the HOA wisely included a detailed spreadsheet clearly showing the budget shortfall, and how the dues increase will fix the situation.
It’s great that they caught the problem early. At least the HOA didn’t get sued or have a major repair suddenly appear, in which case a special assessment may have been necessary. With a special assessment, an HOA often has the power to unilaterally collect a lump sum from homeowners to cover an unexpected expense–and homeowners have to pay. If they don’t, a lien is placed on their property.
Of course I’m not thrilled that the cost of owning my condo suddenly just increased. Luckily, it didn’t increase by much (my dues are still in line with condos in my zip code), and luckily I have an HOA that’s on the ball. I have faith that they’re doing their best to keep costs down, and I know that their last resort is raising dues. The HOA is run by fellow homeowners, so we’re all in the same boat here.
But this sort of issue is something that often faces new condo developments, and homeowners should be aware that there’s no guarantee that HOA dues will remain the same forever. What’s more, there’s no guarantee that some unusual major expense won’t arise, requiring you to pay up big time. Condos can be a great investment, and not having to mow a lawn counts for a lot. But don’t fall under the false belief that living in a condo means you’ll be insulated from all the headaches of home ownership. They can find you, even in a condo.
Here are a few ways to do your due diligence before you buy, to ensure you’re buying into a strong and responsible HOA:
- Ask to read meeting minutes from the past few meetings. Look to see if votes are divided, if issues are left unresolved, or if people seem to fight excessively over petty items–these are signs of an unhealthy HOA.
- Request a copy of the budget and a financial accounting of the reserve fund. You want to see that there’s a healthy reserve fund, and that the HOA has a handle on its budget. Ask for a list of recent expenditures.
- Look at the building’s common areas. If the hallways are dirty, or if the building is in need of painting, the HOA may be ineffective.
- Beware of super high–or super low–dues. Ask your realtor to prepare comparative HOA dues numbers for condos in your area to see how yours compare. If they’re too high, there needs to be a reason. If they’re too low, find out if it’s because the HOA is lax about maintenance (see above).
Have you had any problems with your HOA? If you haven’t yet bought a home, does this make you rethink buying a condo?