HOA Document Review - Buying a Home in an HOA
With nearly 10,000 HOAs in Colorado, there’s a strong likelihood that your new home may fall under one. HOAs offer both benefits and restrictions, with most associations enforcing covenants that may limit how you use your property. Understanding the nuances of HOA living is an essential part of the home-buying process. With proper due diligence, you can ensure that purchasing in an HOA aligns with your goals.
General Hierarchy of an HOA’s Governing Documents
The hierarchy of governing documents typically includes:
Declaration of Covenants, Conditions, and Restrictions (CCRs)
Articles of Incorporation
Bylaws
Governance Policies
Rules & Regulations
Design Guidelines
The Declaration of CCRs holds the highest authority, outlining the primary rules and obligations for HOA members.
Who Regulates HOAs in Colorado?
HOAs in Colorado are governed by the Colorado Common Interest Ownership Act (CCIOA), which defines the rights and responsibilities of both unit owners and associations. While CCIOA provides a framework for resolving disputes, it does not establish state oversight or regulation of HOAs.
Disputes between homeowners and HOAs are considered civil matters. Alternative dispute resolution, such as mediation, is often a practical solution to avoid litigation.
how a prospective buyer obtains HOA Governing Documents
Colorado does not maintain a centralized repository for HOA governing documents. However, associations are required to keep records under Sections 38-33.3-317 and 38-33.3-209.4 of the CCIOA, as well as the Colorado Nonprofit Corporation Act.
Once under contract, buyers are entitled to governing and financial documents outlined in Section 7 of the Colorado Contract to Buy and Sell (Residential). Reviewing these documents offers valuable insight into the HOA’s operations, governance, rules, and financial health.
Due Diligence for Homebuyers in an HOA
Community Association Managers (CAMs)
HOAs often hire Community Association Managers (CAMs) to handle daily operations. Before closing, determine whether the HOA is professionally managed and research the CAM or management company. Online reviews and direct communication with the management company can provide helpful insights.
2. Insurance Coverage
Colorado law requires HOAs to maintain:
Property Insurance for common elements.
Commercial General Liability Insurance for claims related to common element use.
Buyers should confirm that the HOA maintains adequate insurance and understand whether homeowners are required to carry additional policies, such as flood or hazard insurance. For attached-unit communities, proper insurance coverage is critical for addressing potential damages.
3. Costs of Membership
Living in an HOA often involves costs beyond standard dues, such as special assessments, insurance expenses, and other fees. Reviewing meeting minutes and financial documents can help identify potential fee increases or upcoming assessments.
4. Maintenance and Landscaping
HOA boards control maintenance and landscaping schedules. Review governing documents to understand what constitutes a “common element” and what responsibilities fall to homeowners. Evaluate whether the community’s maintenance standards align with your expectations.
5. Financial Health
A financially healthy HOA is crucial. Buyers should review financial documents to assess the association’s reserves, budgets, and overall stability. Financial instability could result in unexpected assessments or increased dues.
6. Rules and Restrictions
HOA rules can govern aspects such as pet ownership and short-term rentals. Carefully review governing documents to ensure the community’s rules align with your lifestyle and long-term plans.
How GLO Can Help
If you’re purchasing property in an HOA, GLO’s experienced attorneys can:
Review governing documents to ensure you understand your rights and obligations.
Assess financial documents to evaluate the HOA’s financial health.
Clarify insurance requirements and coverage.
Provide insights into rules and restrictions that may influence your decision.
Contact GLO today to discuss your real estate needs and learn how our expertise can make your transaction as smooth and successful as possible.
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