Buying a New Home in a Planned Development
What is a common ownership community association?
A common ownership community association is an organization consisting of homeowners and property owners within a residential development that shares common property. The mandate for association membership runs with the land, it cannot be waived or voided by an owner, and it is enforceable by law.
All owners are automatically members and share a property interest in the community. They are subject to governing documents which create mutual obligations and levy mandatory fees for the operation of the association. Because of the membership, the residents have the right to use the common facilities and grounds; the obligation to share in the common expense; and the responsibility for governance.
What are the different kinds of common ownership community associations?
The three kinds of community associations are condominiums, homeowners’ associations and cooperatives. The main difference between the three groups is the ownership.
- Condominiums - In a condominium, the individual unit owner owns fee simple title to the air space contained within their unit and an undivided interest in all common grounds, streets and parking, recreation facilities, utilities, and parts of residential structures (i.e., the roof and lobby), which are collectively known as the common elements. A master deed divides the land into units and common elements and sets forth rights, obligations and restrictions of the condominium owner. Owners are obligated to pay assessments.
- Homeowners’ Association - In a homeowners’ association, the homeowner owns his/her home in fee simple title and the common grounds and facilities are owned in fee simple by the association as an entity. Open space, recreational and common areas are vested in the homeowners’ association and funds for their upkeep are raised from assessments. Homeowners’ associations are regulated by privately written Declarations of Covenants, Conditions and Restrictions.
- Cooperatives - In cooperative housing, the shareholder does not own real estate, but owns a share of the legal entity that owns real estate. The corporation owns the land, buildings and any common areas. Each resident has membership in the coop association and has occupancy rights to a specific suite.
Why do common ownership community associations exist?
The association’s fundamental responsibility is to preserve the nature of the community and protect the value of the property. The homeowners share an interest in common property. The association is legally responsible to maintain, repair, replace, and manage the common ground/elements, and has the authority to adopt and enforce rules and regulations for the members’ use of common grounds/elements.
How do you start a community association?
The developer establishes the community association before construction begins and later transfers authority to the new owners.
What are the governing documents?
Each association has its own unique governing document, written specifically for that association. The documents include:
- A. The Declaration of Covenants, Conditions and Restrictions which is a legal contract that binds homeowners and the association, establishes association responsibilities and defines owner’s rights and obligations, including how the land can be used.
- B. Bylaws which explain the administrative rules, guidelines and requirements for the operation of the association, including responsibility of board of directors and members’ rights and responsibilities.
- C. Articles of Incorporation which define the legal name of the HOA, principal office, resident agent, power and purposes, memberships, voting rights, right of enjoyments, board of directors, dissolution, duration, amendments and liability.
- D. Rules and Regulations which provide a detailed explanation of what is and what isn’t permitted in the community.
- E. The plat which is filed in Land Records is a line drawing which shows the locations of buildings and units, the common areas such as roads, parking lots and open spaces.
Do I have to abide by the rules of my association? After all, I own my home.
Yes, the mandate runs with the deed to your land; you are bound by the governing documents.
Why does one association allow in-home day care for 9 children, but another association will only allow 5 children?
All association documents are unique to that association. Different types of associations have different needs and state laws can vary. The Board of Directors also has the ability to write rules and regulations specific to their community.
Do I have to pay an assessment to the association?
The requirement for paying assessments is mandatory and legally binding based upon its inclusion of the association's governing documents. Failure to pay can result in legal and financial penalties. When owners don’t pay their assessments, it can jeopardize the association’s economic health and stability, and they will be unable to provide the promised services.
Assessments are needed for property maintenance of the common areas. These fees cover exterior maintenance, snow removal, landscaping, trash removal and sometimes utilities, security, recreation facilities and more. They also include savings for reserves.
Why do we need reserves?
Reserve funds meet legal, fiduciary and professional requirements. They aren’t an extra expense; they are for capitol improvements to the common property such as roof repairs, street repairs, stormwater management, and swimming pool repairs. Reserve funds provide for major repairs and replacements which will be required in the future. Rather than charge a large special assessment for major repairs, the association puts a small amount in reserve each month. Although a roof may be replaced when it is 25 years old, every owner who lives under or around it should share in the replacement cost.
How much money should be in my association’s reserves?
Reserves are essential to successful financial management in community associations. Determining how much should be in your reserves is a complex process that depends on several factors. For example, the association must consider maintenance and replacement costs of association assets, including private roads, stormwater management, swimming pool, club house, park areas, and other common property. It is recommended the association have a professional do a reserve study to determine the association's needs.
Why do fees increase?
Fees usually increase because of unplanned expenses or repairs that are more costly than anticipated. Of course, the rise in the cost of living index can affect all costs.
When do I start paying my homeowners’ assessment?
Every HOA is different; make sure you read your governing documents or ask your real estate agent. Usually payment is due when you settle on your home.
What happens if I don’t pay my assessment?
The payment of maintenance and management expenses is dependent upon timely receipt of assessments due from each homeowner. In most cases, the Declaration allows the association to charge late charges and interest and proceed with a lien on your property or foreclosure proceeding for non-payment of assessments.
Why must the association approve architectural changes such as a deck or fence?
Architectural review helps to maintain, protect and enhance property value by creating and preserving an attractive community. Most associations get their power for architectural control from their declarations. Read your declarations and bylaws to understand what type of approval you need before doing any outside construction. In addition to getting the HOA approval, you must get the necessary permits from the County.
If my condominium association has insurance, do I need insurance?
Yes. Condominium owners sometimes assume that the association’s master insurance policy is all the coverage they need. The master policy actually only covers the building, not your personal belongings, or any upgrades, you made to the unit. Neither does it cover the parts of the building that are used only by you - like the balcony or the pipes that feed into your unit from the main pipes.
All residents need their own insurance for the inside of their units, their belongings and any damage that might be caused by something within their unit, i.e. a leaking toilet. In some cases, where coverage is provided under the master policy, you may still be responsible for the deductible.
For personal coverage, you will need a condominium owner’s insurance policy. Also consider water or sewer backup coverage. Check with your insurance agent to find out what coverage is best for you.
Buying a new home in a Planned Development
When I buy a new home, how will I know if there is a homeowners’ association in the community?
The real estate agent, or seller, should notify you. If they don’t tell you, ask if it is part of a homeowners’ association.
The contract of sale must contain a notice in conspicuous type, saying: This sale is subject to the requirements of the Maryland Homeowner’s Association Act (MHAA) which requires that the seller disclose to you at or before the time the contact is entered into, or within 20 calendar days of entering into the contract, certain information concerning the development in which the lot you are purchasing is located.”
What if I don’t receive all the MHAA information?
If you have not received MHAA information 5 calendar days or more before entering into the contract, you have 5 calendar days to cancel the contract after receiving all of the MHAA material.
What if they change the mandatory fees or give me additional information that adversely affects me?
You have 3 calendar days to cancel the contract after receiving notice.
What type of restrictions should I look for?
- Architectural changes, design, color, landscaping, or appearance
- Occupancy density
- Kind, number or use of vehicles
- Renting, leasing, mortgaging, or conveying property
- Commercial activity
You need to review all of the information very carefully to understand your rights, responsibilities and obligations within the development.
How will I get information about my HOA?
The seller is required to give you the following information at or before you enter a contract or within 20 days of entering the contract:
- A statement of whether the lot is located within the development.
- The current monthly fee or assessment and other charges imposed by the HOA, a total of the previous year’s fees, and a statement if there are any delinquent fees against the property.
- A statement that if the owner has knowledge of any unsatisfied judgment or pending lawsuits against the HOA, any pending claims or covenant violations, actions or notices of default against the lot.
- The name, address, and telephone number of the management company.
- Copies of the articles of incorporation, the declaration, recorded covenants and restrictions, bylaws and rules of the primary or related development and if these are obligations are enforceable against owner and owner’s tenant.
What if they do not provide all of the above?
If you do not receive all disclosure required by Section 11B-105, 106 and 107 of the Homeowners’ Association Act you can cancel the contract and get your deposit returned.