Homeowner Associations - HOA's
What is an HOA?
Most Breckenridge condominium complexes and townhomes have a homeowner’s association. HOA’s exist to oversee the common elements and management of a resort or community of homes within a certain geographical area. They are comprised of a board of directors that are elected by the ownership. HOA’s have a set of declarations and bylaws that govern the way an HOA is to manage. Changing these requires a vote from the ownership with a certain percentage majority agreeing to the change.
Board of Directors
Depending on the size of the ownership determines the number of persons that make up the board of directors. As such, some persons may hold more than one position on the board. The length of time to serve on a board is dictated by each individual HOA. Usually HOA’s will have a president, vice president, secretary, and treasurer. Other positions may exist based on the needs of the HOA. HOA’s may be comprised of residential owners, commercial owners, or a combination of both.
Most HOA’s collect monthly assessments from their homeowners. All HOA’s independently determine the monthly dues amounts which are based on the budget for that complex. It’s important when comparing HOA monthly dues amounts to what is covered by that HOA. For example, some HOA’s pay for electric bills; others do not.
Each HOA has a set of governing documents which spells out what each is responsible for. In Summit County, you’ll see HOA’s that cover most of the following common elements:
- Common area snow removal
- Pool and hot tub maintenance
- Common area maintenance, such as hallways
- Common area lighting
- Key systems
- Saunas and Steam Rooms
- Exercise Facilities
- Parking Lots
- Parking Garages
- Building exteriors, such as siding and roofs
- Building insurance (not individual condos and contents which individual homeowners are responsible for)
- Lobby and/or Front Desk
All HOA’s have a budget that must be ratified by the majority of the homeowner membership each year. Budgets are composed of operating expenses and money that is set aside for reserves (see below under Reserve Studies). Operating expenses include such items as payroll for HOA staff (board members are not paid, but many HOA’s have a general manager and other staff members), lighting, snow removal for common areas, maintenance for amenities such as pools and hot tubs, hot water (boilers), cable, internet, phone, etc.
Many HOA’s are moving towards posting their budgets and other financials on websites. Once you are an owner at a certain complex or within a home community, the HOA will grant you access to their site with the correct login information.
Bare Walls Policy / Insurance
It’s very important to understand that when HOA’s list that one of the items they cover is insurance, that they are only referring to common area insurance. HOA’s DO NOT cover the contents of your condo. As a homeowner it is highly suggested that you obtain homeowner insurance for the replacement cost of your condo along with all its contents. Lenders will require that you do have adequate insurance; they want to know that their investment is insured.
It is also important to receive the correct type of insurance policy. So many homeowners do not receive that correct insurance that covers in the event a short-term renter is occupying the unit. Be sure your insurer knows if you will be short-term renting a unit, which is different than if you have long-term renters in place. Ask about H06 policies.
Another items to be aware of is if your HOA has a bare walls policy. This means that you are responsible to fix anything that is inside your unit. For example, if a unit from up above leaks down into your unit and causes damage, it is your responsibility to fix the damage. If it is substantial and you submit an insurance claim, more often than not your insurance company will make contact with the insurance company from the unit above and the case will be worked out between the two companies.
HOA’s will only pay for damage if it is determined that it is the common element that caused the damage. For example, if you own a top floor unit and have a leak coming into your ceiling from a leaking roof, most HOA’s will pay for the damage. Know the answers to these questions about insurance and coverage before finalizing a home or condo purchase.
Reserve studies are performed to help budget for big ticket capital items, such as a new roof, new boilers, new carpet in the hallways, etc. Basically the life expectancy of these big items is determined along with a replacement cost estimate. The cost divided by the life expectancy is the amount that should be reserved each year. HOA’s have to be collecting enough in HOA dues each month to set aside funds for future years when these items will need to be replaced.
What happens if not enough is collected and the roof needs replacing? A special assessment is imposed on all homeowners.
Special assessments are like receiving an unanticipated tax bill. They can often be unexpected, yet you are required to pay. It is very important in the due diligence period when purchasing a property that you get all the information you can from the HOA regarding reserve studies, big capital items that have already been replaced in recent years, and any potential upcoming special assessments.
As a potential homeowner, it’s important for you to understand the health of the HOA. You can ask to see the financials (these may not be given to you under after you are under contract), and you can speak to the general manager of the HOA, the HOA board president, the HOA treasurer, or any other person that oversees the HOA’s financials that can answer your questions.
FYI: you have to pay any special assessment imposed on your property, or a lien can be placed on it. You then would not be able to sell your property until the assessment was paid and the lien was removed.