5 Reasons HOA Fees can be Killing You When Buying a Condo

Sonia Figueroa
Sonia Figueroa
Published on December 11, 2018

Okay, so let’s be real. An HOA fee cannot literally kill you, but it can certainly stress you out and here’s why.

First let me explain what an HOA fee is and what HOA stands for. HOA = Home Owner’s Association and the fees can vary. HOA fees are determined in part by the Board of Directors for the HOA and are approved by the membership. Normally they are based on the operating costs of the common area elements, which everyone pays for collectively. These usually include insurance, landscaping, repairs, trash, sometimes water or gas, management fees, taxes and reserves. They also take a look at the square footage of the condo; the more space you have, the higher the fee.

The Killer HOA Fee’s

So here are 5 reasons why these fees can be killing you, especially if you are just starting out as a new home buyer.

  1. If you buy a condo that is a foreclosure you can be responsible for up to 6 months’ worth of unpaid assessments … are you ready for that? The 6-Month Rule gives associations the ability to recover up to 6 months’ worth of uncollected past due assessments when a unit is sold in foreclosure, even if the former owner can’t or does not pay them. The 6-Month Rule is found in Section 9(g)(4) of the Illinois Condominium Property Act. Here is the link http://bit.ly/condoact.
  2. The more upscale the building the higher the association fees can be. For example, if you are living in the downtown Chicago area, be ready to pay $1,000 plus for HOA fees
  3. Don’t forget about special assessments! These can be a nail-biter, especially if you are just able to barely pay your regular assessments. A special assessment is an amount of money that a condominium trust needs in order to pay for a project or outstanding debt that was not part of the annual budget/assessment. A condominium may have a major leak in a roof that requires thousands of dollars to repair, or a major mechanical system like a boiler may fail and need to be replaced.
  4. In addition to maintaining common areas, HOAs also set out certain rules that all residents must follow called covenants, conditions and restrictions (CC&Rs). In a common building, rules may include what color front door you may have, whether you are allowed to line dry your laundry outside, whether you can have a satellite dish, the size and type of pets permitted, and so on. So, in other words, many rules you need to adhere to. Are you ready to be told what you can and cannot do?
  5. How large is the HOA’s reserve fund? Do they even have any reserve funds? If not, you’d better start running, NOW! Just as you probably keep some savings to pay for large, infrequent expenses such as repairing a car or fixing a plumbing leak, an HOA commonly maintains a type of savings account called the “cash reserves” or a “reserve account” for large, infrequent or unexpected common area costs. An HOA without an adequate reserve fund is asking for trouble. When an HOA without money in reserve is faced with expenses outside its general operations budget, the HOA will likely have two choices: increase dues significantly right away, or levy special assessments. There’s that word again: “special.”

Extra Tip!

So the bottom line here is before you start your home-buying journey with a condo, make sure you know what you are getting into. Also, one last tip #6 is if you are trying to sell your condo, make sure the HOA is in good standing with plenty of reserves and not so many tenants in the units.

The lender looks not only at your financial situation, but also at the financial condition of the condo association or HOA. When selling your home, you could face delays or even a canceled sale because of the association’s problems, including:

  • Delinquencies on association dues
  • Lawsuits
  • Limited cash reserves
  • Too little insurance
  • Too many renters.

So, as you can see, the HOA fees can kill you. ? Not literally though.

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