Determining the "health" of an HOA

Considering buying a foreclosure in a condo but would like to know if the HOA is financially solvent, has adequate reserves and also if they have had to hold special assessments. Where should I begin looking for this type of information?

You can ask for year end financials and next year budget. You can also ask for a reserve study if it was done.

You can also ask for last year of minutes from board meetings. It will tell you if there are any discussions about a potential financial problem.

Are you getting a loan for this foreclosure to purchase it? Certain mortgage companies gather this information when they decide if they are willing to refinance/offer loans to that HOA. There is a "HUD or PUD" form the HOA fills out that shows the health of the HOA. This is usually done for FHA backed loans but Freddie Mac/Fannie Mae may be requiring these as well.

You should never buy a house for cash anyways. You miss out on some of the tax benefits. It's best you get a loan through a mortgage company when you buy so that some of that money can benefit you tax wise. When you fill out the paperwork you should inquire about your rate your paying since it can be dependant on the health of the HOA. If your paying a higher percentage rate and it's not based on your own credit scores, it may indicate an unhealthy HOA.

A HOA may NOT give you the information you inquire since you are NOT a member of the HOA. The house is in foreclosure which may mean the current owner isn't available to share with you their information. The CC&R's are considered PUBLIC documents so you can go to the local RECORDS department of the county to pick up a copy to review. They should also be registered with the state with their incorporation papers. By-laws typically aren't required to be filed anywhere but might with the CC&R's. It's viewed as your responsibility to be informed of these documents since they are Public.

It's good your doing your research. You may want to do some old fashion "Meet your neighbors" approach if you visit the property. Take a few rides in the area at different hours of the day. See if this is a neighborhood which you would want to live. See how many for sale/rental signs are up. Are there any more foreclosed properties? The secret best deal of a foreclosure in a HOA isn't one from the bank. It's the one the HOA does. Although those are much more rare. Make sure you know the "right of redemption" limits where your buying too. My state a person can get the property back for up to a year. This is important to know just in case you buy and they come up with the money to buy back. You don't want to fix the property up too much during that time period just in case.

You might also want to contact the local police or sheriff's department to see what the crime rate is (it could impact your insurance).

If your going to use a Realtor to help purchase a home, use a "Buyer's agent". They work for YOU the buyer and split the profit with the seller's agent to get paid. I recommend this as they can help you do some of this legwork in finding out certain information. Such as what the previous owners paid for the home and some history of the property. This may be public information you can gather from the courthouse. Atleast go to "Zillow.com" and look up some history.

Think your on the right track with all this advice. Foreclosures do work differently in each state. The amount you pay isn't necessarily the bid price at the auction. Be aware that price may be the starting point of the amount the owner owes or legal costs of the bank/HOA. You may have to pickup up the rest of their loan amount. Example: Say you bid 5K on the house. The house is worth 100K. The owner's still owe 65K. You may have to pay 70K altogether. Which is a good deal. It's a bad deal if the owner still owes 110K etc...Good idea to do some research on home values before bidding.

This is one of the worth financial advice one may give. Why would you want to pay an interest to a bank only to be able to deduct some percentage of it from your taxes. You are still paying interest. It only makes sense if you think you can invest your money at a higher interest than your mortgage.


The interest you are paying will not depend on a health of HOA. It just not part of the formula. You may be denied a loan if the property doesn't meet underwriting qualification.

Have the Owner of the property (as they are the only one's with rights to this information) provide you with the following:

1) Most recent financials
2) Most recent Reserve Study (if none was done - run, don't walk, run away)
3) Copies of the last 6 Board meeting minutes (as this way you can tell if they are discussing special assessments or if there are concerns over number of delinquent accounts.
4) Statement of any existing or pending legal actions

Additionally:

1) Get a copy of all governing documents.
2) Read the guidelines and see if you can comply with them (like to play Basketball - do they allow hoops?, etc.)

This would be the "basic" information you should look at.

Melissa,

Yes, having too many investment properties in condo association/HOA will result in FHA not underwriting loans, which can force buyers into higher cost mortgages that are not-FHA. It's loan options that are affected and not a single loan facing a fluctuating interest rate based on owner-occupancy of the properties.

While the devaluation of money by inflation technically makes a fixed-rate mortgage less expensive over time, I'd take a paid-off house over holding a mortgage any day of the week. To me, interest is a form of taxation, only it goes to the bank and not the government. This is a choice. To me, a primary home is not an investment; it's an expense. The only way to cash in on your investment is to sell it and not have a primary residence.....cardboard box maybe?

This is good thought-provoking line of thought you've launched.

It's a complicated system that many owners aren't aware of when applying for a loan. It's alot of behind the scenes information. I didn't know that our HOA could have limited loan options depending on how "health" of our HOA. It was the first time I had ever seen a "HUD/PUD" Rider. As President of the HOA, I was responsible for filling out this form whenever certain loans were obtained by buyers. The form had questions pertaining to the number of owner occupied, collections, and other details of the health of the HOA. It was important to know and monitor this information. It's why I think more HOA's need to require the HOA have a copy or knowledge of an owner's lease agreement. It's not limiting rental option but knowledge of the rental that's important.

It's a complicated issue on paying cash for a house. What if you pay 100K for a house in this market? Your banking on the fact the house is going to stay worth that amount or increase. You also still should have insurance on the home. How much are you going to insure the house for? It's typically for the value of the home plus 20K over. This expense isn't tax deductible. Your also not going to reap the tax benefits of the interest you paid the bank on your loan. If the house is worth less than you paid for it then it will be taxed for a "loss". The same if it's a "gain". If you use this property as rental/investment property, how long before you get your money back from rent? Considering you have to pay for any HOA fees, maintenance, property taxes, insurance, and other sales/rent expenses. Seems to me paying the 3 -4% interest the bank's charge now adays for mortgages doesn't compare to the amount of interest your money could gain in CD's, money market funds, or other investments. I'd rather have 100K in the bank gathering interest in a secured bank account protected by FDIC knowing I can afford to pay off my loan, than 100K being protected by an insurance policy and at risk of the housing market. It just doesn't make sense not to have a mortgage considering the protection it offers.

I've done a foreclosure in a HOA before. It's a good deal if you do the right steps to purchase a foreclosure. However, you just have to know what those steps are and best way to handle the situation. It could take a few years to recover from the investment but then you have recovered.

I want to clarify my point. Paying straight cash for a house isn't a good idea. It's too risky and not beneficial to your credit as much as showing the ability to pay off a mortgage. Now, PAYING OFF a home is different. You benefit more AFTER paying off a long term mortgage than never having one at all. Even if that mortgage is for 5 years you pay off, it really benefits your credit. Having cash on hand doesn't prove your ability to pay back creditors. A history of consistent paying off loans on time does. I'd rather have a stronger credit history than showing a large amount of money in my bank account.

Paying off a house after the mortgage runs out can do much more for you. It shows as an asset and can be used as colataral. It can get you out of jail for bonding purposes. You can qualify for a reverse-mortgage.

Let's agree to disagree on this one. I know I wouldn't pay cash for a house. It just wouldn't benefit and be too risky. I don't want to risk buying a money-pit to toss more cash into.