As the name suggests, a homeowners' association is a group of homeowners. Homeowners' associations function within condominiums, co-operatives, and planned neighborhoods. Generally speaking, the purpose of a homeowners' association is to enforce the covenants that bind all of the property owners. Such covenants are usually found in governing documents, such as by-laws, regulations, or a declaration of covenants, conditions, and restrictions.

How Does a Homeowners' Association Function and What Power Does It Have?

The answer to both questions depends upon the governing documents. In essence, a homeowners' association functions much like the board of directors of a corporation. A corporation's board of directors derives its power from the incorporation documents. Similarly, a homeowners' association derives its power from its governing documents. Among other things, the governing documents will set forth the specifics as to:

• election of officers;
  
• collection of fees;
  
• legal authority;
  
• permissible actions against property owners who violate covenants or by-laws;
  
• maintenance of property; and
  
• assessments.

General Considerations

If you are a property owner who wishes to purchase a property that is part of a group of properties governed by a homeowners' association, you might consider some of the following:

• Obtain a copy of the governing documents. Read the documents carefully and consider whether any restrictions on the real property conform to your plans for the property and your expectations. If not, will the homeowners' association waive the restriction(s) at issue?
  
• Consider the issue of common area maintenance fees. How much will you owe? Does the homeowners' association have a reserve? Has the homeowners' association exceeded its budget for expenditures in the past?
  What types of repairs can you expect in the future?
  
• Is there any litigation pending against the homeowners' association? If so, what is the nature of the litigation?
  
• Are most of the property owners in residence or are a large number of the properties rented to others?
  
• Does the homeowners' association carry general liability insurance?

Lastly, it is important to keep in mind that, to the extent you finance the purchase of real property subject to governance by a homeowners' association, the lender may ask for additional information such as:

Copyright 2010 LexisNexis, a division of Reed Elsevier Inc.