Homeowners associations (HOAs) play a significant role in the management and upkeep of many residential communities in Michigan. As a potential homebuyer, it’s very important to understand the functions and responsibilities of HOAs to ensure you don’t overbid.
- Overview of Homeowners Associations in Michigan
Homeowners associations is a largely unregulated private organizations of other homeowners, the developer, and real property managers. The HOA’s role is supposed to be to manage residential communities, including condominiums, townhouses, and single-family home subdivisions. HOAs are established through a set of governing documents, such as the Articles of Incorporation, Bylaws, and Covenants, Conditions, and Restrictions (CC&Rs), which outline the rules, regulations, and responsibilities of both the HOA and its members.
- Responsibilities of Homeowners Associations
The primary responsibility of Michigan HOAs include:
- Maintaining common areas: It is widely believed, even amongst critics, that a suitable role for HOAs is to maintain the upkeep and maintenance of shared spaces within the community, such as parks, playgrounds, swimming pools, and clubhouses. This offsets the burden on local government, benefits the community, and doesn’t infringe on traditional real property rights of homeowners.
- Enforcing rules and regulations: Depending on the rules and regulations as well as the board’s interpretation, another role of HOAs is to enforce the rules and regulations outlined in the CC&Rs. The stated goal is oftentimes to maintain the community’s appearance and quality of life. These rules may include restrictions on home modifications, landscaping requirements, and rules regarding parking or pets. And they vary widely between enforcement of rules that are fair and rational, to draconian interpretation that can become difficult for homeowners to live within.
- Assessing and collecting fees: When maintaining common areas, there are costs associated with maintenance, therefore HOAs collect fees. These fees, often called assessments or dues, are typically paid monthly or annually.
- Managing disputes: Where there are even-tempered individuals elected to boards, HOAs serve as mediators in resolving conflicts among homeowners and ensuring that community rules and regulations are followed. This can facilitate a low-cost or free alternative to involving the legal system in disputes between neighbors.
- Legal Framework Governing Homeowners Associations in Michigan
In Michigan, homeowners associations are largely unregulated, governed by their bylaws and declaration. And since HOAs are (almost) always formed using the Michigan Nonprofit Corporation Act some answers regarding its powers may be found there. This means new buyers, who haven’t yet learned “the way things are done here” are often at the mercy of an HOA.
- Benefits and Challenges of Living in an HOA-Managed Community
A purported benefit of living in an HOA-managed community includes maintaining property values, however, over the life of ownership potential buyers should consider the time-value-cost of fees and assessments, versus buying in a community without an HOA. Homeowners who are paying upwards of $1,000 per month, might not reap a proportionate increase in property value than had they not been part of the HOA (if your property value going to increase greater than the cost of the HOA (1,000 x life of ownership), and greater than it otherwise would without the HOA.
Another cost that homebuyers should consider before buying in an HOA, are that the rules and regulations imposed by the HOA limit homeowner’s ability to modify their property and use it as they see fit. Overly restrictive rules that don’t adapt to new standards overtime can suppress property value. And some homeowners might feel as though the prohibition on certain activities is equivalent to buying a space in a dormitory.
As a result, many potential home buyers refuse to purchase homes in HOAs or demand significant price reductions.
- Tips for Prospective Homebuyers
Before purchasing a home in an HOA-managed community, it’s crucial to review the HOA’s governing documents to understand your rights and responsibilities as a homeowner. Be sure to:
- Ensure you have the ability to terminate the purchase agreement if you discover something in the HOA documents you find untenable. Prospective buyers should hire an attorney, and ask that they incorporate something like: “Notwithstanding anything else written herein, the buyer may terminate this agreement at anytime, and without penalty, if within 10 days of receiving all Homeowner’s Association documents (including but not limited to bylaws, articles of incorporation, declaration, or other rules and regulations) the buyer notifies, the seller, the buyer’s agent, or the seller’s agent of their desire to terminate this agreement. Upon such termination any monies deposited in escrow must be returned to the buyer.”
- Review the CC&Rs and bylaws to ensure you can comply with the community’s rules and regulations. Ask for an audit of all fines and penalties issued by the HOA of the previous 12-months, that will give you a sample of how the HOA operates in this moment.
- Assess the financial stability of the HOA by reviewing financial statements and reserve studies.
- Consider the cost of HOA fees in your budget and inquire about any special assessments or upcoming fee increases.
Speak with current residents to gauge their satisfaction with the HOA’s management and overall community experience.
- Attend HOA meetings to gain insight into the organization’s operations and decision-making processes.
Homeowners associations may have some positives, but are not for everyone. As a potential homebuyer, understanding the responsibilities, legal framework, and benefits and challenges associated with HOA-managed communities is essential to reduce conflict with your HOA. By thoroughly reviewing the HOA’s governing documents, assessing its financial stability, and engaging with current residents, you can make an informed decision about purchasing a home in an HOA-managed community.
