Homeowner Nightmare: HOA Dues On the Rise

May 5, 2010 by  

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.

Even condo dwellers can be subject to the unexpected costs that plague traditional homeowners.

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?

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  • http://www.hoamanagement.com Property Management

    Not paying the HOA dues can bring lots of headaches for you. To avoid such trouble, you must never neglect your obligations to the homeowner's association. Get the help of a lawyer in order to understand the best course of action when facing HOA dues problems.

  • Annie Porter

    Problem: None of us get a raise that is in comparison to the ability of the HOA to raise our dues, now $369. It was $114 in the mid ’90′s. As a result, some of us have been forced out of our homes at Casa De Oaks, Thousand Oaks, CA 91362. Our HOA meet at Denny’s and eat. Who’s paying for that? They use our money to insure themselves, incase we sue them for breach of promise, amoung other things. The management rep is very rude and insults people when they say they can’t continue to pay. Some of the Board don’t even live in the Complex. This complex was built in 1985-1986 as low income housing with the stipulation that all homeowners must get a special permit or license from the City of Thousand Oaks after they show proof of financial hardship. Integrity Management of West Lake and the HOA are turning a blind eye to this stipulation, hopeing they can continue to collect dues from those that buy up the units at a cheap price and put them on the market for rent, at least 65-70% rented in the complex. There are at least ten bank owned properties vacant in the complex per Realty Trac with others in forclosure due to owners walking away from the units. One property in perticular was bought last Summer and sold for profit about two months later as a “short sale”. My neighbors and I are living without heat and air because the heat pumps in each unit have started to break down and we can’t afford to replace them due to the cost of our dues. The dues do not cover anything other than the HOA deamed necessary expenses. Do we all need to band together, call the City of TO and report the outside contractors who are renting units without a license, then fire Integrity Management and elect a new board and lower our dues? Or do we all walk way and loose everything we’ve worked so hard for? Or do we wait till we are old and retired and can no longer afford the dues? We have succeeded to over throw the board before by giving one person the right to vote for us by proxy, who then delivers a vote of no confidence to the board, then we take it from there. We can vote against them but we have to deliver our ballots. Anyone game?

  • Anonymous

    This one is really mind blowing information about HOA authorities. And it’s really informative and incredible information post. And this one also represents the mentality of the home owner.

    Condo Manager

  • http://www.hchansen.dk/ejendomsdrift.php Eminemmatters7

    Thank you so more for this very useful and informative article. It is really worth reading especially to those who are related to property management. Keep it up guys

  • http://roy-homes.net/ Utahrealestateagents1

    Just my little vent on HOA’s! In my opinion, the are a relic that should be banned. I have yet to see one worth the money that they charge. Not to mention, many first time buyers can qualify for the price range of condos and townhomes, nut the HOA fees are so ridiculous that it knocks them out of the buying game. Come on people, HOA are a dinosaur and need to go extinct!

  • http://www.realsavvyrealestate.com Rebecca

    That’s an interesting perspective! What do you think should exist in the place of HOAs? I would think that condo buildings still need some sort of central management…but it does seem that HOAs as a rule could be more efficiently run.

  • Frustrated in California

    So is there any legal recourse? I live in an HOA in California and here’s just one of our issues; Our water system is ffalling apart, (the HOA owns the well) and they are too lame to ever get around to fixing it. Now they want to join the local water district, which really would be a good thing, but each homeowner will be assessed 12K. We don’t qualify for grants because of all of the vacationers that have 2nd homes here make too much $$, so our permanent residents who are poor/retired often have no water and are stuck. I was without water for two weeks this past May.