Six Warning Signs That an HOA Is Poorly Run

If you're hunting for a house, you're going to see a lot of condominiums and houses governed by homeowners associations-there are about 370,000 homeowner associations in the U.S., and about 75% of all newly-built homes are part of a condominium association or homeowner's association (HOA). That means you'll have to factor in fees of some kind, as well as the occasional assessment for unexpected repairs or maintenance costs, when you're crunching your numbers to determine how much house you can afford.

There are a lot of reasons to be wary of HOAs and condo boards, but many of them are mandatory" associations you can't avoid joining when you buy your home. While horror stories of overly draconian HOAs abound, many HOAs and condo boards are well-run by rational people and do a lot of good work managing the community's shared finances and spaces.

But if you buy into a neighborhood run by an incompetent or borderline-criminal community association, there are very likely hidden financial problems. That means that even if you love the house and the neighbors and the association fees are acceptable, there could be enormous assessments coming your way after you close on the house. If you're considering buying a home governed by an association, here are some clues that you're about to buy into a future of immense assessments.

Low reserves

A well-run homeowner's association should maintain reserves"-money put aside for unexpected expenses, like emergency repairs. If the HOA or condo board doesn't have money in reserve, every problem that comes up will result in a special assessment. And if you happen to buy your unit or house just before the hammer comes down, you could find yourself being forced to fork over a bag of cash shortly after making one of the biggest purchases of your life.

Any time you're considering buying a home governed by an association, you should look at the financials to make sure it's run competently. If you notice that the reserves are very low, that's a clue that you're essentially buying a house with a side of looming assessments, because the association will need to plump up their reserves somehow-or will need to put their hand into your pocket when something big goes wrong, like a leaking roof or a lawsuit against the community.

No repairs

Part of your due diligence on any community association should include looking at the maintenance and repair records. A lack of recent repairs might indicate that there's a laundry list of problems that will soon be your problems.

For example, roofs are expensive. If you're buying a condo in a building that hasn't had a new roof in decades, it's only a (short) matter of time before a new roof becomes necessary, and there is probably going to be an assessment to make that happen. What you want to see is a clear record of regular, proactive maintenance and repair. Sure, all maintenance and repairs cost money, but it's better to pay a sensible regular fee you can budget for than deal with a sudden demand for money.

Different states have different requirements when it comes to records, and even a healthy association might not have repair and maintenance records going back more than a few years-but they should have them, and they should be able to tell you when big-ticket items like roofs or large communal areas were last repaired, replaced, or renovated. Any signs of deferred communal maintenance should be seen with a price tag hovering over them like a vision of a very expensive future.

Lots of litigation

One big clue that you will be hit with a huge assessment shortly after closing on your new home is litigation: If your association is embroiled in a big lawsuit (or a long list of them), not only are legal costs going to mount but a settlement or finding against the association will come out of your pocket in the form of hiked fees or assessments.

Court records are public (often a simple search for your city's name and court records" will get you to the right starting point), so you should be able to search the local dockets for the association's name. If the board or HOA is suing or being sued by everybody under creation, that not only implies a poorly managed community, it means you'll be paying legal bills once you take ownership.

Crumbling commons

One of the main functions of a community association is to maintain the common" areas. In some communities, this is pretty basic-roads and sidewalks, primarily, or the landscaping outside the building. But some communities boast clubhouses, playgrounds, pools, rooftop decks, and other common areas that are part of the lure for homebuyers.

When considering a condo or a house under an HOA, take a tour of the common areas. Is the party room in great shape, or is it scuffed-up, and the sound system is out of commission? Has the pool been drained for five years? If the common areas were last renovated in 1985, there will eventually be necessary repairs or renovations, and that bill is looming.

No paperwork

One of the best ways to determine the health of a community is to review a few years' worth of meeting minutes and other paperwork. These will tell you just about everything you want to know, from how well the association is run to how they approach repairs and maintenance.

One big red flag? If the board or HOA won't share those minutes with you, or can't share them. It should be obvious that neither scenario is good: If they simply refuse to give you access, they're likely hiding something (something that could be extremely expensive for you once you're an owner) or the association is run poorly and no good records are actually kept. Either way you should assume no minutes = a big assessment on its way, because secrecy or incompetence never equals good financial governance.

No recent meeting

If you can't get a few years' worth of board meeting minutes and paperwork because there hasn't been a board meeting in a long while, not only does that tell you that the whole community is poorly run, it tells you that there could be a lot of problems lurking under the surface. Even if the house or condo is in great shape and the fees are manageable, if no one's bothered to hold a meeting of the condo board or the HOA association in years, that means no one's paying attention to stuff like maintenance, repairs, and other costs. But problems never remain hidden forever, and it's quite likely that the moment you close on your unit, all those chickens will come home to roost.