Home Buying in San Diego>Question Details

John D., Home Buyer in San Diego, CA

Are their any professional companies that assist buyers in reviewing HOA documents?

Asked by John D., San Diego, CA Sun May 9, 2010

I find it overwhelming to review all the HOA documents, CC&R's, financial reserve studies etc... I feel it's very risky buying a condo conversion in San Diego right now where most of the buyers are foreclosing or doing short sales and not paying their HOA dues and probably not caring what happens to the building anymore. So I want to be very careful in my due dilligence inspection process in buying a condo.

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While I think these services - and the services of an attorney - are valuable, the problem isn't so much in discovering information as placing a dollar value on it.

For example, say the reserves are underfunded, a 100-unit building is projected to be $175,000 short this year. Does that mean that the value is $1750 less - one unit's share of the deficiency, or is it greater, because more units are likely to be deadbeats?

There isn't really a linear, logical method to evaluating HOA documents. There are good general approaches, one of which you're taking: it's risky, and if I take on this risk, the pricing had better well be worth it.

But how much, exactly, is incalculable.

All the best.
0 votes Thank Flag Link Mon May 10, 2010
Thanks Steve, I will check that form out.

I'm finding the % of units >30 days late on HOA is a much bigger issue with condo financing than owner occupancy %. Most condo's have over 50% occupancy. But for example on a 18 unit condo project, it only takes 3 units to be > 30 days late on HOA dues, and then only cash buyers or 20% down buyers can buy it (and not even all 20% down lenders will lender with >15% of units 30 days + late on hoa dues. And with all the short sales and people walking away from condos, they stop paying their HOA dues.

And this creates a negative snowball effect....more cash buyers buy and rent the condos, owner occupancy drops further below 50%, and then only more cash buyers can buy + the condo turns into mostly renters. Very concerning trends.
0 votes Thank Flag Link Mon May 10, 2010
Hi John, while not a panacea for your HOA review ills, there is a contractual way to reduce the amount of your review time – or at least make sure you are getting all applicable information that can be reviewed to protect yourself.

Has the Seller provided you with CAR form HOA?

In situations where the property is a PUD or other common interest subdivision, Para 6B of CAR form RPA (Residential Purchase Agreement) establishes the period of time a Seller has before submitting CAR form HOA [this is Para 7B in the new version released 4/28/10]. This is an important step that often gets overlooked by Agents. HOA docs are typically ordered by Escrow without using this form even though its use is CLEARLY set forth in the RPA!

Citing CA Civil Code §1368 as its authority, CAR form HOA provides THE list of disclosures a HOA must provide to the Seller within a 10-day period of CAR form HOA submission. Page 2 of the form provides for the HOA to notate each item as "Attached" or "Not Available". There is also space for an explanation.

Para 14B of CAR form RPA covers the timeline for a Buyer to remove investigative contingencies. 14B3 covers the condition where seller does not meet the disclosure timeline. If “Common Interest Disclosures” as required by CA Civil Code §1368 are not provided, the wording of the RPA suggests the Buyer shall have 5 days extra to remove the investigative contingency if the timeline established by 14B1 has been passed.

Please consult with your Agent regarding the receipt of this form.

Best, Steve
0 votes Thank Flag Link Mon May 10, 2010
Thanks for the answers everyone. I will check out the HOA document review company. The other thing I want to do is a thorough review of the physical condition of the building. A lot of the condo's I'm considering in San Diego were recent condo conversions.

1. How can I find out what was replaced and upgraded during the conversion (besides the obvious interirors of the condo's)?

2. Have you heard of issues with the electrical and plumbing systems of conversions in San Diego?

3. Are there property inspectors that specialize in condo's? I want to get a REALLY good property inspector

Also, I plan to get a copy of the last 6 mos of meeting minutes of the HOA board and the reserves study to find out how much the condo has in reserves and what they plan to replace. Also, a mjor factor for me is reading abot the policies for rentals in the CC&R's. I want to eventually move out and rent the condo I buy, so I need to be 100% crystal clear on their rental policies.

I need to also understand their insurance policies. Say if pipes burst in the walls and it's like a $50,000 repair. Will this be covered by insurance or be a special assesment?

Thanks!
0 votes Thank Flag Link Mon May 10, 2010
Hi John,

Having someone review HOA docs is great but you must also do your own homework. Open your eyes when you walk around the complex, is there deferred maintenance, is landscape taken care of, also ask for the owner occupancy rate. Another thing that might help in your decision is attending a board meeting, if the BOD will allow it, this will give you more of an incite into the community.
I hope this helps a little, any more questions feel free to contact me.

Tisha Rocha
Prudential California Realty
858 361-6170
tisharocha@hotmail.com
0 votes Thank Flag Link Mon May 10, 2010
John....apologies for intruding on your thread....... Chad's answer seems like a great source.

Question for Chad........Are you aware of any comanies in any other state providing this service? Tx Deb
0 votes Thank Flag Link Mon May 10, 2010
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
Contact
Hello John,

As you know, it is imperative to read through the HOA docs BEFORE you follow through on a purchase. I recently had a deal fall out of escrow as it was revealed in the HOA docs that no parking was permitted on your own driveway overnight. For a family with 3 cars and it only being a 2 car garage place, the math clearly did not work out. As for your concern, there is a company that does do what you are inquiring about. The link is

http://www.hoadocumentreview.com/

Of course, I'd make sure to read exactly what it is they do to make sure they meet your expectations.

Best of luck,

Chad Basinger, REALTOR®, CPA, CFP®
chad@chadbasinger.com
858-997-3704
0 votes Thank Flag Link Mon May 10, 2010
Not the way you want, John D.

Reviewing the documents is one thing, evaluating them is another - by which I mean, helping you to determine whether a particular condo is a good or bad buy based on the underlying financials.

You should expect a discount in price for the increased risk of the conditions you mention, and then - and only then - can you attempt to determine whether you're willing to take the risk or not. A great building with great reserves, high owner-occupancy, no short sales and nobody behind on their homeowner's dues - this is going to be a more expensive building to get into than the flophouse you're describing!
0 votes Thank Flag Link Mon May 10, 2010
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