What is an HOA, and what do HOA fees cover?

What is an HOA?

According to the California Attorney General, a homeowners association, usually shortened to HOA, is an organization that makes and enforces rules and guidelines for a residential subdivision, a planned community, or a condominium building. In most cases, the people who buy into the community must become members of the association, agree to follow its rules, and pay its fees and assessments. A board of directors or governors elected by the homeowners usually makes decisions for the HOA and enforces those rules.

The Consumer Financial Protection Bureau (CFPB) notes that condominiums, co-ops, and some neighborhoods may require you to join the local homeowners association as a condition of owning there. The name can change from one state to another: Texas law, for example, calls these groups property owners associations, and condominium associations in Texas are governed by a separate law from subdivision associations. Knowing the local term helps you find the right state resources, and our real estate guides cover the rest of the buying process.

What do HOA fees cover?

HOA fees, which associations often call assessments, pay for the shared costs of running the community. According to the Foundation for Community Association Research, assessments typically fund four groups of expenses: operations such as utilities, contracts, and staff; professional services such as management, legal work, audits, and insurance; amenities such as pools, clubhouses, and recreation areas; and reserves for planned capital repairs and replacements. In daily terms, that money can pay for landscaping, trash collection, security, cleaning, and insurance coverage for shared areas.

Most associations collect assessments monthly, though some bill quarterly or annually, depending on their governing documents. Some communities charge every owner a flat rate, while others base the amount on unit size or percentage of ownership. The CFPB says HOA dues can range from a few hundred dollars a month to more than one thousand dollars a month, and they are usually paid directly to the association, separately from your mortgage payment. Your mortgage servicer may agree to include them in your escrow payment on request, although the CFPB describes this as uncommon. In either case, the dues belong in your monthly housing budget when you work out how much home you can afford.

What are CC&Rs, bylaws, and HOA rules?

Every association runs on a set of governing documents, and these pages shape much of daily life in the community. The covenants, conditions, and restrictions, known as CC&Rs, set out the rights and responsibilities of the HOA, the requirements and limitations homeowners must follow, and the remedies that apply when someone breaks a rule. The California Attorney General gives fencing height and placement as an example of the kind of detail CC&Rs can regulate, and points out that each HOA's CC&Rs may be different. In Texas, restrictive covenants are found in a document usually called the Declaration, which is filed in the real property records of the county.

Most HOAs also have bylaws, which establish how the association itself is run, along with rules and regulations adopted by the board. The Texas State Law Library lists parking, mailbox color, and nonpolitical signage as examples of topics that are generally left to the association, so it pays to read the documents before you plan a new fence, an exterior paint color, or an addition. If you enjoy renovation and DIY projects, look closely for an architectural review process that may require approval before exterior work begins.

How do reserve funds and special assessments work?

A reserve fund is money the association sets aside for large, foreseeable projects. The Foundation for Community Association Research names roofs, roads, parking lots, elevators, and mechanical systems as typical examples, and it explains that a portion of regular assessments usually goes into reserves. Saving in advance helps an association avoid deferred maintenance, and the Foundation says it also reduces the likelihood of large, unexpected special assessments for owners.

The Foundation defines a special assessment as a one-time charge imposed when reserves or insurance are insufficient for a specific project or an unexpected expense. Regular assessments can also rise over time, and the Foundation lists inflation, rising insurance premiums, utilities, vendor contracts, and planned capital needs as common reasons for increases. When you compare two communities, the monthly fee gives you only part of the financial picture, so ask how the reserves are funded, which major repairs are planned, and whether a special assessment has already been approved or discussed.

What happens if you do not pay HOA fees?

The Foundation for Community Association Research explains that when you buy a home in an association, you agree to abide by its governing documents, and those documents legally obligate you to pay assessments. The CFPB warns that owners who do not pay these fees can face debt collection efforts by the association and even foreclosure. In Texas, the Residential Property Owners Protection Act, found in Chapter 209 of the Property Code, addresses third-party collections, required notices, and foreclosures for assessment liens.

The steps an association can take, the notices it must send, and the protections available to owners depend on your state and on your community's documents. If you fall behind or receive a notice about unpaid assessments, the California Attorney General suggests reviewing the HOA's rules to see what recourse you may have and consulting an attorney about your legal options. A real estate attorney licensed in your state can explain which rules apply to your situation.

What should you review before closing on a home with an HOA?

The best time to study an association is before you are committed to the purchase. Start by asking for the full set of governing documents, including the CC&Rs or declaration, the bylaws, and the current rules, then turn to the finances. In Texas, a buyer may request a resale certificate, which summarizes the association's financial status, its fee structure, and any unpaid debts owed on the property; the Texas State Law Library notes that preparing these records can cost up to $375. Texas sellers must also give buyers notices about HOA fees and membership obligations before the contract is signed or as part of the contract, although not every sale is subject to these rules. Other states use different names, forms, and deadlines for similar disclosures.

As you read, keep a short list of questions for the seller, the association, and your agent:

• How much is the regular assessment, how often is it billed, and what does it include?
• How are reserves funded, and which major repairs are planned?
• Has a special assessment been approved or discussed?
• Which rules could affect how you plan to use the home, such as parking, fences, exterior changes, or leasing?
• Are there any unpaid balances tied to the property?

Your real estate agent can help you request the documents, and a real estate attorney can explain what they mean for your contract.

How do HOA laws vary from state to state?

The rules that govern associations come from state statutes and from each community's own documents, so they differ from one state to the next. In California, the Davis-Stirling Common Interest Development Act governs HOAs and covers board elections, finances, maintenance responsibilities, dispute resolution, and many other matters, and most California HOAs are set up as nonprofit mutual benefit corporations. Texas spreads its rules across several chapters of the Property Code, treats condominiums under a separate act, and has no state agency that oversees property owners associations. Texas law also limits some restrictions, so an association there can set rules for solar energy devices, rain barrels, and flag displays without being allowed to ban them outright.

Because the details differ so much, treat any general guide as a starting point for your own reading. Check your state attorney general or real estate agency pages for local rules, keep copies of your association's documents with your other household records and your home maintenance checklist, and bring specific legal questions to a real estate attorney licensed in your state. This article offers general information and is not legal advice.