My wife and I made an offer on a property in a self-managed Virginia community of single-family homes. Our offer hinged, in part, on the sales agent’s assurance that maintenance of the community’s private roads was totally covered by current homeowner’s association annual dues of $1,000 per lot. However, we just received the HOA’s disclosure letter stating that the board is studying a road engineer’s report for possible dues increases and special assessments.
Friends who live in the community tell us the licensed engineer’s 75-page report recommends major road repairs, which could immediately boost dues to $3,500 per lot per year for the next 10 years. If true, this would kill the deal for us.
Our problem is that we can’t get more good information about the situation. Past board meeting minutes from the disclosure packet show that the board hired the engineer, but there’s no mention of the report. And this year’s approved budget (also in the disclosure packet) includes no planned expenditures for road maintenance. We hear that the board didn’t distribute the engineer’s report and has been holding it for almost two months. According to our friends, the board is looking for ways to quietly bury the engineer’s recommendations and arbitrarily defer all major repairs regardless of validity so as to avoid a dues increase. Such a ploy, if true, also would tend to make us walk.
We really want this house, but can’t come to grips with the unknowns. We thought that mandatory disclosure was meant to help buyers, but the HOA seems to have other ideas, laws notwithstanding.
Is there a way to obtain more facts and protect our interests, without hiring an attorney, while trying to move ahead with this purchase?
When it comes to houses, the unknown can be extremely unnerving. In your case, you’re imagining a worst-case scenario (which you should do, and proves you’re a thoughtful buyer) in which you have to shell out an extra $2,500 per year, or $25,000 over 10 years. You said your dues would go up from $1,000 to $3,500 per year.
While that number would be an inconvenience for some buyers, if you’re a senior living on a fixed income, it could break the bank and put your home at risk.
First, we want to reassure you that you’re asking for the right things. If the board of directors has received this information and is sitting on it, or rather, not disclosing it purposefully, then that could bode poorly for any homeowner in the development. The board may be doing a disservice to the community it represents.
If the board is actively hiding information from the homeowners and is actively failing to work in the best interest of the homeowners, the board may find itself in hot water. We could imagine a scenario in which the board hides the recommendations from this engineer and then each board member quickly lists his or her home for sale, so as to exit the community before the next (and presumably more responsible board) puts the recommendations into actions.
However, there’s another possibility. It’s possible the board doesn’t believe the engineer’s recommendations are valid and has commissioned a second study to confirm or deny the report. If that’s happening, there should be discussion noted in the minutes and some sort of budget set aside to pay for the work.
Of course, even if the board discussed these options during a meeting, it’s possible that they’re keeping that discussion off the books as well (also not a good move).
So, what can you do? We think you’ll be happy knowing whether the information your friends have shared is correct, whether it then leads you to buy the home or look for something else. So, you should knock on the door of the president of the board of directors (or another member of the executive committee) and tell him or her that you’re looking to buy in the community and see if he or she would be willing to answer a few questions about the neighborhood.
Once you’re face-to-face with that person, you should ask point-blank about the engineer’s report and talk about what might need fixing in the community. If you’ve noticed that the roads are in disrepair, you could ask specifically about it. Since you know that the board spent money to hire the engineering company, you can ask about that expenditure and what the report contains.
What happens next will inform your next move. If the board president denies everything, you know that if you buy the home, you’ll probably end up paying much more in the future to live there. You will also know that the board isn’t being truthful with the homeowners. If the president tells you about the report, you can ask to see it and ask what the recommendations are and how soon the board plans to act on them.
Depending on the answers to those questions, and others that you might ask while you’re in the conversation, you’ll plan your next move.
We often advise buyers of new construction homes to knock on doors in a community to see how things are going, how happy the homeowners are, and whether the builder has made good on promises to fix punch list items. Answers to those questions tell you a lot about whether you should buy in a particular community.
But knocking on doors (or, showing up a few minutes early to a board meeting), can help existing home buyers discover whether the community they’re evaluating is one they’ll be happy living in over time.
We hope you get a good response. Please let us know what happens.
Ilyce Glink is the creator of an 18-part webinar and e-book series called “The Intentional Investor: How to Be Wildly Successful in Real Estate” as well as the author of many books on real estate. She also hosts the “Real Estate Minute” on her YouTube channel. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them at ThinkGlink.com.