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The HOA is a legal entity made up of condo or townhouse unit owners. It makes sure that the rules are followed; it listens to owners and addresses the complex's physical areas and legal functions. Cooperatives have similar arrangements; their boards perform the same functions as an HOA.

Do you want to join the HOA5 Actually you have no choice. Part of owning a condo or townhouse is joining the HOA and paying your monthly HOA dues.

These monthly HOA dues can cover various expenses, such as insurance for the property and various business costs. Yes, you must pay an HOA fee, but because the HOA covers the complex's insurance, you won't have to take out a separate insurance policy like a homeowner would.

The HOA forms a board made up of condo owners that enforces the condo rules, listens to its owners, and keeps up the property. But its primary goal is to make sure all the owners follow the established rules, the CC&Rs. That's really just lawyer language for “follow all the rules.”

Co-ops have similar rules and regulations their shareholders must follow as well.

Common CC&Rs include conforming to certain color schemes when painting the exterior of your unit or using a particular type of window covering or awning. You might not be able to fly a flag on a pole attached to your front door.

No two stand-alone houses are exactly alike. Many have similar floor plans and were built by the same builder, but he may have added a few square feet here or an awning or different roof there. If you're trying to determine value, houses aren't as easy to assess as units that are right next to one another or in the same condo complex. We'll discuss this aspect of value in more detail in chapter 3.

Yet these property types are very similar. Their floor plans are typically the same for several — if not all — of the other one- or two-bedroom units. This means that if one property owner doesn't follow the CC&Rs and lets his or her unit fall behind in repairs, keeps an unsightly appearance, or engages in other value-deflating practices, the other units may lose their value as well.

Rarely will two properties right next to each other sell for different prices at around the same time. They're easy to value because of their sameness. If someone keeps his or her condo in poor shape, inside and out, a prospective buyer would offer less for that condo compared to other condos — and that sale is recorded publicly. Then, the next time someone thinks about selling his or her property, the real estate agent will research sales in that complex and see that it's worth, say, $200,000 based on past sales. There's nothing in that information that said it sold for less than it should have because the owner didn't take care of it.

All HOAs have CC&Rs designed not to make the place feel like a jail, but to maintain the grounds and general upkeep, and to make sure the units maintain their value by preventing owners from allowing them to fall into disrepair.

Lenders can review the CC&Rs when deciding whether to place a loan on a property. Sometimes these regulations are too onerous and a lender won't place the loan. Such instances are few and far between, especially today. But they still happen from time to time. CC&Rs can have language stating that the HOA must approve the buyer moving in. Or they may have what is called a “first right of refusal,” which means that if an owner wants to sell his or her unit and move away, he or she must let the HOA have the first shot at buying the unit instead of putting it on the open market.

In either instance, this could appear to be discriminatory (an association reviewing potential buyers or buying a unit from a seller and proceeding to pick and choose among potential buyers). When lenders see this type of language, they often will make the HOA revise it before they will issue a loan.

Though such activity is rare, it does occur at times, so you need to be aware of it. How do you know what the HOA rules are? Will you find out only after your loan is approved with the condition that the CC&Rs must be reviewed?

You can ask for a copy of these CC&Rs up front and review them for yourself. Boards are made up of people. Sometimes people can be, well, people. They can mess things up through overzealous application of rules and ruin the fun for everybody. But as long as you don't try and plant your native totem pole outside your front door or paint your roof pink, you'll probably be fine. But there are some things to look out for.

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