Adobe Stock
Property owners’ associations — whether a traditional homeowners’ association or condominium owners’ association — have become the norm for new developments in Texas. If you are considering purchasing a residence that’s subject to a property owners’ association, there is a certain minimal amount of due diligence, optimally during the option period, you should consider.
Ask your real estate agent about the association’s reputation. A dysfunctional association with hostility among the members often affects property values. While this may result in a lower purchase price for you, it can also lead to an unenjoyable ownership experience, difficulty in selling, and reduced resale price.
In most cases, you should receive a “resale certificate” that includes statutorily required information. There are two red flags: pending litigation and the association’s finances. If the association is party to litigation, you should determine the basis. Litigation is often a result of an overzealous board or unreasonable architectural review committee that may interfere with your plans for your home.
The resale certificate also will include information about the association’s budget, balance sheet, and reserves. Does the association have the funds to maintain its common areas and responsibilities? An association that owns the roads, or a community with substantial amenities such as swimming pools or lakes, should have sufficient reserves to cover the long-term capital expenditures. If not, you risk the possibility of special assessments, which can be substantial and unbudgeted if the association does not have a reserve report.
Review “Exhibit B” to your title commitment. A standard contract should provide documents listed on the title commitment that you can use as a basis for backing out of the contract within a certain time of the “exception documents” being received from the title company.
These will likely include a “Declaration of Covenants, Conditions, and Restrictions,” the association’s bylaws, and the other governing documents of the association. You should thoroughly review and understand these documents, including the assessments and other fees. If the option period has passed and you are not agreeable to the requirements, you should retain legal counsel to object to the governing document. This time period is often a matter of a few days.
After reviewing the governing documents, you should drive the neighborhood and note violations of the governing documents. If a restriction is ignored or not enforced, a court could find enforcement of the restriction has been waived, or is being enforced arbitrarily and capriciously, resulting in the restriction being unenforceable.
If the association is still in the “development period,” the developer will likely control most if not all aspects of the association, including the board and architectural review committee makeup. You should research and inquire with your real estate agent, and potentially legal counsel, as to the developer’s reputation to treat owners fairly and relinquish control when the time comes.
It is important to understand that the association’s governing documents are contracts that “run with the land” when a lot/house or unit is purchased; thus, you are bound by them whether you read them or not. It is advisable to know what you are agreeable to beforehand, because in a property association, it is always better to ask for permission than forgiveness.
Prichard Bevis, of counsel to the Decker Jones, P.C., full-service law firm in Fort Worth, represents clients in real estate matters, including homeowner and condominium owner associations throughout North Texas.