Check the HOA Before You Commit

When you buy a home in a community with a homeowners association, you are buying more than a house. You are also agreeing to pay dues, follow a set of rules, and share in the financial health of the association. In Las Vegas and Henderson, many communities have HOAs, including many master-planned neighborhoods, condominiums, and townhomes. An HOA can be a real benefit, and it can also be a source of cost and frustration if you did not know what you were signing up for. The time to find out is before you are committed.

What an HOA is and what it does

Nevada's laws call these communities common-interest communities, and they are governed largely by Chapter 116 of the Nevada Revised Statutes. The association, run by an elected board and often a professional management company, collects assessments from owners and uses them to maintain shared areas and operate the community. Depending on the community, dues might cover common-area landscaping, private streets, gates, pools, parks, clubhouses, exterior maintenance, or insurance on shared structures. What dues cover varies enormously from one community to the next, so never assume.

Your resale package and your right to cancel

Nevada gives buyers a valuable tool. When you buy a resale home in an HOA, the seller must provide you a resale package at the seller's expense. The association has 10 calendar days after a written request to supply the documents, and a package remains effective for 90 days. The package includes:

• The declaration, often called the CC&Rs, plus the bylaws and the rules and regulations.
• The state's information statement for buyers, often called the Did You Know statement.
• The association's current operating budget and year-to-date financial statement, including a summary of its reserves.
• A resale certificate that describes unsatisfied judgments or pending legal actions against the association, any transfer or resale fees, and all current and expected fees and charges for the home.

You generally have until midnight of the fifth calendar day after you receive the resale package to cancel the purchase in writing, without penalty, and receive your deposit back. The notice has to be delivered the right way, by hand, by prepaid mail, or electronically. Five days goes quickly, so read the package right away and ask your agent exactly when your window ends.

What to look for in the documents

Dues and what they cover

Find out how much the dues are, how often they are paid, how much they have risen in recent years, and what they include. Compare two similar homes by the full monthly cost, not just the mortgage payment. Ask about fees due at closing, such as transfer fees or capital contributions.

Reserves and special assessments

Associations must set aside reserves for the repair and replacement of major components like roofs, roads, pools, and walls. Nevada law requires the board to have a professional reserve study done at least every five years and to review the funding plan each year. Read the reserve summary and ask whether the association is funding what its own study says it needs.

When reserves fall short, the board may levy a special assessment on owners to cover major expenses. Ask whether any special assessments have been levied recently, are being discussed, or are anticipated. Assessments bind the home and every future owner, so you would inherit them.

Rules and restrictions

Read the rules as if you were already living there. Look at what is said about:

• Parking and vehicles. Nevada law allows associations to adopt rules that reasonably restrict the parking or storage of recreational vehicles, watercraft, trailers, and commercial vehicles. A driveway or side yard that looks like it fits an RV does not mean the HOA allows it. In a community that is not gated, an association generally cannot regulate public streets, but Nevada law still allows reasonable rules on parking or storing these vehicles, so ask how the rules apply to the home you are considering.
• Rentals. Many associations restrict or prohibit leasing. For short-term rentals, Clark County's ordinance does not allow a license in a common-interest community unless the governing documents expressly authorize it, and the cities of Las Vegas, Henderson, and North Las Vegas have their own rules.
• Exterior changes. Paint colors, fences, patio covers, pools, landscaping, garage doors, and solar panels often require approval from an architectural committee.
• Pets, noise, signs, trash cans, and basketball hoops. These everyday rules shape daily life.
• Fines and enforcement. Ask how violations are handled and what fines have been levied.

Financial health and legal issues

Look for trouble signs: a thin reserve fund, a large number of owners behind on dues, pending lawsuits, or deferred maintenance. These can lead to higher dues, special assessments, difficulty getting a loan, or trouble when you sell. Lenders may also review an association's finances and legal issues, especially for condominiums, and a community with serious problems can limit your financing options.

Why this matters: liens and foreclosure

Assessments, fines, and related charges can become a lien on the home, and under Nevada law an association generally has the power to collect unpaid amounts through a nonjudicial foreclosure. That is one reason to read the paperwork carefully and to make sure the seller's account is current. The resale certificate is where you will see any amounts that are owed.

Master associations, sub-associations, and condos

Some communities have more than one layer of governance. A master association may oversee a large planned community, with a separate sub-association for a particular neighborhood. In that case, you can owe two sets of dues and be subject to two sets of rules. For condominiums and townhomes, ask what the association insures and what you must insure yourself, since the answer affects your insurance needs and costs.

Questions to ask before you buy

• What are the monthly dues, and what exactly do they cover?
• Is there a master association or sub-association, and what are all the fees?
• What fees are due at closing?
• Have there been special assessments in the past few years, or are any planned?
• How are the reserves funded, and when was the last reserve study?
• Are there pending or recent lawsuits against the association?
• What do the rules say about the things I plan to do: park, rent, remodel, add solar, keep pets?
• How many owners are delinquent on dues?
• Who is the management company, and how responsive are they?

The Nevada Real Estate Division also has an Ombudsman's office that serves owners in common-interest communities and publishes educational materials worth a look.

Do not assume the HOA allows it

Buyers sometimes fall in love with a property because of what they plan to do with it: park a motorhome beside the house, rent it out, add a certain kind of patio cover, or paint the exterior a favorite color. Before you commit, confirm in the governing documents that you may do the specific thing you have in mind. If it matters to you, do not rely on what the seller or a listing says.

For more about due diligence, see Never Skip the Home Inspection. If you would like help reading an HOA package or comparing communities, we are happy to help.

Contact The Perna Group