How to tell if HOA for a prospective condo purchase is financially healthy?

Question

I'm considering purchasing a condo. I live in a major metropolitan area; so I'm almost certainly going to end up in a building maintained by an Home Owners Association (HOA).

As I'm learning the ins and outs of buying a place I'm hitting a bit of a wall here. I'm wondering, how can I tell if a HOA for a condo I'm purchasing into is financially stable?

Are there any federal/state mandated financial statements HOAs typically have to file? Is there a way to figure out a healthy foreclosure ratio for a particular HOA? Should I avoid places where high surprising HOA expenses are likely to occur (e.g. places with indoor/rooftop pools)?

Answer 1

You can (and should) request the HOA disclosure information. It should include the HOA financials, the reserve state, litigation that the HOA is involved in (both as plaintiff and as the defendant), and assessment information (both current and expected future). Also, you should get information about the seller's state with the HOA (current/late/liens).

If you don't know how to read all that - ask your realtor to help you. If your realtor doesn't know how to read all that - find another realtor. Its their job.

In many states HOA disclosures are mandatory (although may cost some), but in some states they may not be and you have to ask for them explicitly. Make sure your purchase contract is contingent on the HOA disclosures, so that if you find stuff hidden in there that you don't like you could back off from the contract.

As a side note - indoor/rooftop pools are hardly surprising. Liability suits are surprising. And are much harder to notice.

Answer 2

A key for financial health is to see the budget. Does it have a plan for putting funds into a reserve to pay for major expenses? This could include building a new pool house, replacing the roof, repaving the parking lot, etc. There should be a reserve plan, where an expert was hired to develop the plan, and it should be reviewed every 5 years.

Then make sure they are following the plan.

Another important item is to see if they have a large number of late payments. If they have a lot, then they will struggle. They also may get into the habit of expecting to balance the books based on the late fees. This is very bad.