This post kicks off a 9-part series on “How to X-ray a Home Owners Association (HOA).” The posts will help you discover the inside scoop on an HOA’s financial health and social environment so you can decide if it’s where you want to live. The series will cover these topics:
Part 1 – Series Outline and Minnesota’s Disclosure Law
Part 2 – The Financial Statements
Part 3 – Annual and Special Assessments
Part 4 – Reserve Funds
Part 5 – Delinquencies, Foreclosures and Short Sales
Part 6 – Lawsuits, Judgments and Insurance
Part 7 – Management and Community Amenities
Part 8 – Home Businesses, Leases, Parking and Pets
Part 9 – Making Sense of It All
Now before we get started, raise your right hand and repeat after me: “I do hereby solemnly swear and acknowledge that reading information on this website does not create an attorney-client relationship with the website’s owner or anyone else. I promise to take no actions without consulting my own lawyer, or will not otherwise rely on anything suggested herein because the website owner is a known certifiable crackpot, and I am old enough to know better.” Next, tap your heels three times. Done? Good. Let’s begin…
State laws regulate HOAs, so the rules vary. While this series focuses on Minnesota statutes, many of the basic principles discussed have similar counterparts in other jurisdictions. Minnesota has an excellent disclosure law for condos, townhouses and cooperatives which are categorized as “Common Interest Communities (CIC).” These developments are mainly regulated by MN Statutes Chapter 515B.
Summarizing just the major requirements, a prospective buyer of a MN condo, townhouse or other CIC must be given the following documents:
- The association’s Declaration, Articles of Incorporation, Bylaws, HOA rules, and any amendments. Collectively, these items are commonly referred to as the HOA’s Governing Documents. If you need an intro to the Governing Documents, see my post “Decoding HOA Documents”.
- A Resale Disclosure Certificate with an effective date no earlier than 90 days from the purchase agreement date. This Certificate contains a wealth of info including:
* The amounts and due dates of the unit’s assessments and other charges
* The common property that is the HOA’s responsibility, and the reserve fund balance for these items
* The HOA’s budget, balance sheet, and income and expense statement
* The description of insurance coverage(s) provided by the HOA
* Whether the HOA is involved in any pending lawsuits or unsatisfied judgments
* Whether the HOA has notified the current owner that their unit violates an HOA provision, government ordinance, or other regulation.
Upon receipt of the above items, the prospective buyer then gets a 10 day review and can cancel the purchase agreement during this time without penalty. Unfortunately, the Governing Documents are usually several inches thick and reading them is an arduous task. Sometimes in the excitement of purchasing a new home, buyers fail to do their homework and make costly mistakes. Choose to be a wiser purchaser by reading this series.