If your neighborhood or condo building is ruled by a Homeowner Association, you’re on the hook for paying monthly HOA fees. These fees cover not only the maintenance of common areas, such as pools or clubhouses, but also the repair or replacement of shared structures – for example, new roofing on a condo buildings. In some cases, the fees also cover services, such as water, trash and sewer. HOA fees differ for each community, but the more amenities an association offers, the more costly the monthly fees are likely to be.
Homeowner Associations are run by a board of directors, which prepares a community budget each year. The budget determines the fees per unit, per month for the fiscal year. Fees are broken down into two parts: current year operations and reserves. The current year operations fee goes toward insurance, property management and maintenance. If those operations cost $250,000 and there are 100 units in the community, the fee is determined by dividing 250,000 by 100 to equal $250 per month for operations. The board will also collect money to go into reserves, which saves for long-term repairs and replacements that have been predicted by a reserve study, done by an outside expert. This study creates a 20-year schedule of when items will need to be repaired and the approximate cost. If the study says the HOA should be stocking away $50,000 a year, that number is divided among the community to equal $50 per month. Add that to the $250 operations fee, and it arrives at a $300-per-month HOA fee for homeowners.
Increases and Assessments
The HOA budget and reserve study try to predict the future. In some cases, operating expenses run high or an unexpected repair needs to be done. Additionally, negligent homeowners sometimes do not pay their HOA fees regularly. In this case, the board of directors can increase HOA fees the following year to play catch up and return the reserves to a comfortable level. Additionally, the board can levy an additional fee, known as a special assessment, to homeowners to complete repairs or needed maintenance work.
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If you miss paying a monthly HOA fee, the association can take a series of steps – increasing in severity – to recover the missing money. The first step is typically a letter from the HOA board, notifying you that the fees are overdue. Returning your account to good standing could include paying late fees or interest. Next, you could be suspended from having any rights or using amenities as a homeowner, such as voting on community issues or using the workout facility. If your unit is a tenant-occupied rental, the HOA can collect rent from the tenant and apply the money toward your dues. Most severely, in many states, the HOA has the right to file a lien on your property, evict you or foreclose on your home. Check local state laws to determine what’s legal in your area.
Questions to Ask
Before buying an HOA-run property, ask questions to determine if the monthly fees work for your budget. Ask how the board determined HOA fees and the increases, as well as how often increases have historically occurred. Request a copy of HOA dues per year for the past 10 years, and inquire how large the reserve fund is. Find out if there have been any recent special assessments and if any are planned for the near future. Finally, find out what the monthly dues cover – an HOA fee might seem high, but if it covers services such as trash pickup, sewer and water, that’s a different bill you can eliminate.
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