Purchases and Sales of Homes with HOA’s in New Jersey

Experienced Attorneys Helping Buyers and Sellers with the Legal Aspects of HOA Home Transactions in Monmouth and Ocean County, NJ

Managing Purchases and Sales of Homes with HOA's in New JerseyA homeowners association is a board of residents who govern a community. The purpose of this board is to maintain the property values of all the homes in the community, enforce the community’s rules, and manage the common areas that all the residents of the community share. They accomplish this purpose by charging monthly or annual fees and fining residents for failure to comply with the HOA’s rules and restrictions. This money then goes toward paying for the landscapers, pool cleaners, or other hired help to maintain the common areas, such as pools, playgrounds, dog parks, and other amenities.

While people may feel frustrated at the occasional HOA board member who over inflates their role, or may see scripted videos on social media implying that HOAs overstep their bounds constantly, there are many benefits. Whether they like or dislike them, it is imperative that individuals know how to approach the sale or purchase of a home that has an HOA. The Bronzino Law Firm guides clients through the complex process of buying and selling HOA residences across Ocean and Monmouth Counties. Whether you’re considering a property in Brick, Sea Girt, Wall Township, or anywhere along the Jersey Shore, our experienced real estate attorneys ensure your rights are protected throughout the transaction. Contact us today at (732) 812-3102 to discuss your situation and learn more about how we can help you ensure a smooth legal process.

Home Owners Associations Must Abide by Certain Standards in New Jersey

An HOA is a private organization which governs a housing development of some sort. HOAs are often associated with subdivisions or collections of houses in a neighborhood. Similar associations include condominium owners associations (COAs) for condos. They may also exist for townhouses. Typically, an HOA is a nonprofit organization, which means the fees and fines they collect are intended to be used for the betterment of the housing development, not to provide the board members with a profit.

There is a significant amount of legal framework that governs HOAs in New Jersey. The Planned Real Estate Development Full Disclosure Act may be the most important, as this is the law that gives all unit owners in a community membership in the HOA, offers basic participation rights such as voting, and regulates how the HOA bylaws can be amended. Other important laws include the New Jersey Nonprofit Corporation Act, which oversees the organizational makeup and operations of New Jersey nonprofits, and the New Jersey Law Against Discrimination, which offers state-level protections against housing discrimination, including but not limited to age, sex, creed, gender identity, ancestry, marital status, color, race, disability, and family status.

What to Think about When Making an HOA Home Buying Decision in NJ

For many people, buying a home is buying freedom. After years of renting and being stuck with boring white walls and unable to plant a garden in their own backyard (if they even had a yard), owning their own house represents a chance to do whatever they want with their home. However, buying a property with an HOA may put some restrictions on that freedom. Therefore, it is important that potential buyers take their time and thoroughly research the home they are considering buying before they move forward.

Property Due Diligence Steps in an HOA

While it is important to do thorough research on any home an individual is thinking of buying, doing due diligence may be even more critical when buying a property with an HOA. Every HOA is different, with their own rules, regulations, fees, assessments, and fines. Taking the time to review all the details associated with the HOA carefully ensures that a buyer does not find themselves paying fees they cannot afford or abiding by restrictions they feel are unfair or too restrictive.

Some steps to take as part of due diligence include:

  • Review the governing documents: Ask for and read the Covenants, Conditions & Restrictions (CC&Rs), bylaws, and other rules and regulations. If anything seems unclear, ask the seller or request contact information for an HOA board member to speak directly with someone who can clarify the uncertain information.
  • Obtain and carefully examine the HOA’s financial statements: A poorly managed HOA means a chance of increased monthly assessments, special assessments, or fines in the future. Take time to review the financial statements and learn whether the community has been properly managed. If the HOA carries debt, look at what kind, how much, and why. If money appears to have been misspent in the past, ask why and what has been done to prevent that going forward.
  • Inquire about special assessments and pending litigation: When the HOA is sued, judgments come out of the community’s homeowners’ pockets in the form of increased assessments, new assessments, and increased or new fines. Ask about any pending litigation as well as any special assessments.

Understanding HOA Property Limits

There are common HOA restrictions that buyers will often find. These restrictions can have a significant impact on the lifestyle choices that the buyer may be able to make if they buy a home with an HOA. One common restriction includes pet restrictions, which may limit the type, size, and breed of pet a homeowner can have or may limit their ability to engage in backyard farming, such as owning chickens or beekeeping.

Parking restrictions are also common, limiting where homeowners can park or how long they may park on the street (or even how long their garage door may be open), or the types of vehicles they can park, such as restricting commercial vehicles or recreational vehicles. Property modifications and additions are also common restrictions, limiting the changes that can be made or requiring board approval before the changes can be made. These changes can be as extensive as putting a new roof on the home or adding a room or they can be as minor as fencing height or placement or choice in exterior paint color.

Another important restriction prospective buyers will want to watch for is a restriction on renting or leasing the property. This can completely derail a purchase if the buyer is hoping to buy a property they can use as an investment property or if they may want to turn their home into an investment property at some point in the future. Noise levels and usage rules for common areas are also restrictions that potential buyers will want to carefully review.

Financial Obligations and Enforcement in an HOA

HOA fees are intended to pay for repairs, maintenance, common area upkeep, and other assorted expenses that the HOA takes care of. HOA fees or dues are also sometimes referred to as assessments. These are different from special assessments in that assessments (or fees) are charged monthly or annually. However, it is essential to know the amount and the payment frequency so that potential homebuyers can calculate these fees into their budget and ensure it is an expense they can afford.

Special assessments are another fee that HOAs may charge. These differ from regular assessments in that these are only occasionally charged and are often for specific purposes. Special assessments may be the result of unpaid homeowner fees, natural disasters, budget shortfalls, serious infrastructure repairs, or other unforeseen circumstances. They are often one-time fees, meaning they will not be charged again, but depending on the amount due, some HOAs may add them to the regular dues or offer installment payments.

Fines are another financial obligation that prospective buyers may want to consider when evaluating a home with an HOA. Fines are charged when a homeowner is not complying with an HOA restriction. It can be an intentional violation, such as the homeowner parking on the street, or it can be a violation the homeowner is not aware of, such as failing to clean up storm debris immediately after a storm due to the homeowner being out of town. These fines can range from as inexpensive as $20 or as much as $500 or more, depending on the severity of the infraction and how long the infraction continues to exist after the homeowner is initially made aware of it.

Prospective buyers need to be aware that HOA fees, special assessments, and fines are not optional payments when buying a house with an HOA. When these financial obligations are assessed to the homeowner, they must be paid. If the homeowner fails to pay any of them, the HOA must follow state laws and the Fair Debt Collection Practices Act. However, these laws allow the HOA to place a lien on the property in question and, if the financial obligations are unpaid long enough, to foreclose on the property. A lien will require the HOA to be paid back from the profits of selling the home before the seller receives any profit. A foreclosure by the HOA will have the same impact on the owner’s credit and ability to borrow money for future loans or mortgages as a foreclosure by the financial institution that held the mortgage.

What New Jersey HOA Property Sellers Must Disclose to Prospective Buyers in NJ

In New Jersey, selling a home is generally not an as-is sale. The law typically puts the responsibility on the prospective buyer to do their due diligence and ensure they are aware of any problems that exist with a house before they buy it. However, this does not necessarily mean the seller does not have to disclose anything. In fact, Weintraub v. Krobatsch established that silence could constitute fraud if a seller is aware of a potential issue with the property (in that particular case, a cockroach infestation) and does not inform the potential buyer. This is relevant to buying and selling homes with HOAs because the decision to purchase a home can be influenced by whether that home has an HOA, as the rules and regulations, plus associated fees and potential fines, may determine whether the buyer wishes to buy a home with an HOA.

Sellers are legally obligated to disclose to prospective buyers any material facts about the property, which includes the fact that the property has an HOA. The seller must disclose details such as the association’s financial status, the monthly or annual HOA fees, limitations on property usage, and any current or recent disputes with the HOA. If the seller fails to disclose this information, the buyer may take legal action seeking financial compensation for non-disclosure. While the buyer would have to prove that the seller knew about and intentionally did not disclose the fact, this would be extremely easy with an HOA.

However, while the seller is obligated to disclose this information, the buyer still bears the responsibility to read and review the provided documents and ensure they fully understand the HOA fees, rules, and restrictions before moving forward with buying the house. As long as the seller has disclosed the appropriate information and provided the required paperwork, the buyer cannot claim non-disclosure simply because they did not understand some or all of the information.

The Importance of Addressing HOA Violations Before Listing

Sellers may have decided to sell for a number of reasons. Often, once the decision is made, the seller is eager to close the sale and move on. However, outstanding HOA dues, unpaid fines from violations, or unaddressed violations may slow the process down. In particular, these things may result in a lien against the property, which can interfere with the sale. Once a seller decides they want to sell their home, they should immediately contact their HOA and ask for a detailed statement of all outstanding fees, assessments, fines, and violations their home has.

Once the seller receives this statement, they should review it. If there are any records the seller disagrees with because they believe it has been resolved, they should dispute it. Once they know they have an accurate accounting, they should pay all outstanding fees, assessments, and fines, as well as resolve any existing violations, whether those violations have been officially noted or not. If there is a lien against the property, the seller should ask the HOA for a lien release once they have taken care of these issues. The lien release will remove the lien from the home and allow them to sell the home without issue.

Even after these issues have been resolved, the seller should disclose any past HOA issues or violations to prospective buyers. This can prevent issues with non-disclosure or other legal issues later.

Essential HOA Property Paperwork to Provide to the Buyer

In any real estate sale, there are numerous documents that must be shared, read, reviewed, and signed to complete the sale. When selling a home with an HOA, there are additional documents that the seller is required to provide to the buyer. The buyer is not required to request these documents. The seller must provide them as part of disclosing that the house has an HOA.

Documents that the seller must provide include:

  • Resale certificate
  • CC&Rs
  • Bylaws
  • Recent HOA financial reports
  • Estoppel certificate (a document which confirms the property’s current status with the HOA, including violations or outstanding fees)
  • Rules and regulations regarding the common areas
  • A property account statement showing a detailed breakdown of the property’s current HOA fees and any outstanding balance it may have
  • HOA insurance certificates

Common HOA Property Sale Hurdles

When buying or selling a home with an HOA, there are some common challenges that both buyers and sellers may face. Recognizing these challenges and knowing how to address them can be important to ensuring that a sale goes through smoothly.

1. Enforcement Challenges

HOA rules are frequently enforced by fines. Homeowners in many HOA communities often complain about rules enforcement, however. Sometimes these complaints are about inconsistent enforcement. Sometimes the complaint is that the rule cannot be enforced because it was not enacted by majority vote or because it violates state or federal law. In some cases, there may be complaints about rules enforcement when fines are issued without a clear explanation of which rule is being enforced.

These disputes can be particularly problematic if they arise right before or after a home is sold. If the dispute leads to violations or a lien against the property, it can prevent the sale from going through. If a rule was not yet passed when the buyer bought the home but was in the process of being passed, a buyer may be subject to a rule they wouldn’t have agreed to had they known prior to the purchase. Therefore, it is important to be as upfront and clear as possible about any disputes over rules enforcement and any new rules that may be in the process when buying or selling a home with an HOA. These disputes, when they arise, may be settled by mediation, arbitration, or a lawsuit if necessary.

2. Fee Increases and Special Assessments: Impact on Home Buyers and Sellers

Assessments or fees do not always remain the same. While they may not increase frequently, they are still likely to increase occasionally as part of inflation. Special assessments can vary in both frequency and amount. Like enforcement of the rules, if a fee increase is in the works during a home’s sale but has not officially been enacted, a buyer may not be aware until after the purchase is complete. HOAs must send notice of proposed fee increases, but the timing of such notice could easily mean a seller is unaware and unable to inform the buyer.

Because of their unpredictable nature, special assessments can cause significant problems for buyers and sellers. If these assessments become too frequent or are too expensive, they may be the reason a seller decides to sell. Alternatively, their lack of predictability may cause a buyer to think they can handle the expense and purchase the house, only to later discover that the special assessments are more than they can handle.

3. Maintenance Responsibilities and Property Damage

HOAs are responsible for the maintenance of the common areas of the community, such as pools, playgrounds, community centers, etc. HOAs are also responsible for property damage to these areas. If the HOA does not handle this maintenance or property damage in a timely fashion, the homeowner may claim that they are not living up to their responsibilities.

Additionally, sometimes, these disputes arise from misunderstandings. For example, some HOAs will provide lawn and landscaping services to the homeowners’ private property, though not all do. If either a buyer or seller mistakenly believes that the HOA is responsible for this, it can lead to a dispute. This can be remedied by carefully reading all the paperwork provided during disclosure to ensure familiarity with what things are the homeowner’s responsibility and what things are the HOA’s responsibility.

4. Amendments to Governing Documents

Amending the HOA’s governing documents is allowed, but it does require following procedure, getting input, notifying homeowners, getting a majority vote, and providing copies of the change to homeowners. If any of these steps are not followed precisely, it can create major disputes with the HOA. Even when these steps are followed, there may be a minority group of homeowners who disagree with the amendments made.

While it isn’t likely that the HOA will be able to make every homeowner happy, the risk is reduced if they do not try to amend every document at once, keep copies of documents together to ensure there is no conflict between documents, and consult with an attorney if there are any questions. If buyers or sellers have a dispute with an amendment to a governing document, they should consult with an attorney.

Call our Firm for Legal Guidance through Your HOA Home Transaction in South Jersey

A real estate attorney at Bronzino Law Firm can be beneficial to any home sale or purchase. When selling or buying a home with an HOA, our team can be particularly helpful. With our knowledge of the laws and procedures surrounding real estate transactions in New Jersey, our lawyers can review and interpret governing documents to ensure that our clients thoroughly understand them. Whether you have questions regarding a home with an HOA that you are trying to buy or sell in Rumson, Eatontown, Long Branch, Point Pleasant, Howell, Sea Bright, Colts Neck, or elsewhere in Ocean and Monmouth County, our attorneys can assist you with the process of completing the transaction and ensure that you are legally protected every step of the way. Consult with a real estate attorney at our Brick or Sea Girt, NJ office today at (732) 812-3102 for a cost-free consultation.