In NM, all HOAs must comply with state statutes (Chapter 47 Article 16) regarding homeowner associations. If anyone is interested in digging into and understanding these requirements, they can be found at
Section 16 Homeowner Association :: 2014 New Mexico Statutes :: US Codes and Statutes :: US Law :: Justia.
The requirements cover not only HOAs but in some cases also the lot owners in an HOA. For example, 47-16-12, Sale of Lots, mandates among other things that: "...prior to closing, a lot owner shall furnish to a purchaser copies of:
(1) the declaration of the association , other than the plats and plans;
(2) the bylaws of the association ;
(3) any covenants, conditions and restrictions applicable to the lot;
(4) the rules of the association ; and
(5) a disclosure certificate from the association .
Within ten business days after receipt of a written request from a lot owner, the association shall furnish a disclosure certificate containing the information necessary to enable the lot owner to comply with the provisions of this section."
So this is the ultimate protection for purchasers to know exactly what rules and restrictions they would be facing if they buy a property in a specific HOA. It's on the purchaser to read and understand these governing documents. I just finished serving 3-1/2 years on our HOA board (the last 2 as board president) and you wouldn't believe the number of residents who either didn't read these documents before they bought in the community, didn't really think out what the requirements meant and/or just don't believe some of the requirements should apply to them.
HOAs are not for everyone. My wife and I like living in a community where we know our neighbors cannot trash up their yards and decrease our property values, park vehicles in their front yards, play really loud music or otherwise do something unreasonable that negatively impacts our enjoyment of our house and yard, etc. Where someone is in charge of the common areas and makes sure they are properly cared for and look good, and that the community will continue to look good out into the future. In our minds, the restrictions we are subject to - such as getting approval for any exterior house or yard changes - are a small price to pay in exchange for these benefits. But that's our opinion, others may have differing views.
I do have several suggestions for folks that may interested in a home in an HOA:
1. Find out whether the HOA is developer or resident controlled. Developments switch to resident control when a certain percentage of lots are sold, with this percentage specified in the governing documents. Until the switch, the developer typically has the right to make changes in the governing documents and/or HOA rules without significant resident input or approval. Resident control typically means that residents have to approve, by written vote, any change in the governing documents. And there would be a resident board, likely more responsive to resident input than the developer, who governs the community.
2. If you're buying into a new HOA, it will be developer-controlled. This is not necessarily a huge negative if the developer is experienced, since such developers know that if they unreasonably change the rules for the worse on residents, those residents will talk to potential purchasers and lot sales are likely to decrease. So it's in their best economic interest to keep residents happy. I would be more concerned if the developer is relatively inexperienced or a pretty small company. Those are ones where there would be more risk, not only because of possible HOA rule changes in the future but also due to such things as the developer going bankrupt, etc.
3. MountainDweller said that "...HOA leadership and rules often change. So if you have a great HOA now, it can always change for the worst (or vice versa)." I see this a little differently. In my experience, HOA rules don't often change, rather it's the HOA leadership's interpretation of the rules that changes. This may seem like a minor point to some but it's why I ran for our board and intend to continue to keep a close eye on it. Our HOA rules can only change by a yes vote of the community's residents, which happens rarely in most HOAs. Getting enough residents to vote is a typically problem in an HOA. However, an HOA board can decide, by adoption of new policies, how those rules are interpreted and enforced. And yes, you can get a bad board that does stupid things. But it's incumbent on HOA residents to stay involved with the governing process, through either running for the board, attending all their meetings, reviewing and submitting comments on any actions, etc. I would never live in an HOA and ignore what's happening at the governing level. So if you're thinking of buying a home in an HOA community, you definitely need to plan on staying engaged - at some level - in the governing process.
4. Another issue in an HOA involves who is doing the daily management for the HOA. Options for this can include a company with whom the HOA board contracts to manage the community; one or more HOA employees who the board hires to manage the community; the developer themselves in the case of a developer-controlled HOA; and direct management by the HOA board. I've listed these options in the order in which I think they work the best.
Hiring a professional management company to manage the HOA is the best approach. Although this can be costly, depending on the duties specified in the contract, it's definitely the best way to ensure all HOA rules are applied reasonably, fairly and equitably to all residents. Direct management by the board, unless you are talking about a very small HOA, is the worst approach and typically is when you start hearing significant complaints about how an HOA is being managed or how rules are being set and enforced. Having inexperienced folks run any organization can lead to problems and an HOA is no different, particularly if board members have full-time jobs or other responsibilities that leave them with limited time to manage the HOA. So definitely ask who is responsible for the daily management of the HOA you are looking at. If it is a professional management company, ask to see a copy of the HOA's contract with them and review it to see whether it seems to be reasonable and adequate.
5. HOA finances is another area you should look into as part of due diligence in buying a home in an HOA. What are their current fees and what is their fee history (how much have they increased over the last several years)? Review their annual budget and decide whether it appears reasonable for the size and complexity of the development. Do they have a reserve budget for paying for replacement of capital items in the future and has there been a recent reserve study by a professional consultant that indicates their current reserves are adequate? What level of reserves are currently funded? (This should be at least 80%).
6. Developers often make it easy to buy new homes in an HOA without retaining the services of a local realtor. This is what my wife and I did. But my professional career has been in contract/project management and my wife is a former CPA, so we were very confident in our abilities to review HOA governing documents, finances, contracts, etc. It may make a lot of sense for other folks to engage a realtor - if you get a good one that can give you significant assistance in reviewing and understanding this information. Something to ask a realtor before you engage them is whether they are capable of helping you with all of the above reviews. If not, think about finding a different realtor or maybe engaging a lawyer/accountant to help. Making sure you know exactly what you're getting into is worth the price you will pay for this assistance.
7. Markeg mentioned that: "Our community is in the development stages so we pay a small yearly HOA fee, but also pay a large CDD fee for community development which is added to our real estate taxes per year. I'm sure it's similar in NM." I'm not sure. We have no other community fees besides our yearly HOA fee. Not sure about other HOAs in NM but I suspect the fee situation here may be quite different than in FL.
Our HOA fee went up when the community transitioned from developer to resident ownership. The developer had been subsidizing HOA costs while they had control, in order to keep the HOA fee low (to encourage sales). The increase wasn't all that much, and our fees are still low (in my opinion) for the services we receive, but it is something else to be aware of when considering buying into an HOA. You should be able to tell this by reviewing the annual HOA budget, since any developer contribution should be a line item in the budget. You can divide that contribution by the number of homes in the community (at full buildout) to see how big an increase in HOA fees would result when the developer goes away.
8. Another suggestion is to talk to folks in the community you are thinking of buying into, which is a good idea regardless of whether it's an HOA community or not. If an HOA, I would talk to the board president and maybe another board member. I would also talk to other residents in the community. In addition to asking them the typically general questions about what the community is like and how they enjoy living there, you can also ask them about the HOA, the governing documents, HOA finances, etc. Ask them whether there are any HOA rules that really bug them, what they think of the developer and/or current HOA board, etc.
Hope this helps anyone out there who might be thinking about buying into an HOA community.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
