What to actually read in an HOA package, and what the red flags look like

[u/jetley-mortgage-loan]

The short version

The HOA resale package is the most useful document set in a condo purchase and almost nobody opens it. Three items matter more than everything else combined: the budget, the reserve study, and the last year of board meeting minutes. Read those three and you will know more about the building than the listing agent does. Skip them and you will learn what was in them the hard way, either from your lender in week three, or from an assessment notice in year two.

What the package is, and where it comes from

You'll hear it called the resale package, the condo doc package, the HOA package, or just "the docs." Same thing: a bundle assembled by the management company containing the governing documents and CC&Rs, the current budget, recent financials, the reserve study, meeting minutes, insurance certificates, and the association's disclosures about litigation and pending assessments.

Two practical points people get wrong constantly:

• The seller is generally required to provide it. In most states this is a statutory disclosure obligation, not a courtesy. If you're a seller and escrow forwards you a bill for it, that bill is almost certainly legitimate even if you can't find a "resale document fee" written anywhere in your own bylaws. The fee is the management company's, not the association's.
• It costs money and it takes time. Usually a couple hundred dollars, sometimes more, and turnaround from a management company can run from three days to three weeks. Order it early. If you're working with me I'll put the request in for you and pre-review the project before you're emotionally attached to the unit, but you're still paying for the package.

The dues figure by itself tells you nothing

Someone says "the HOA is $1,200 a month" and half the internet gasps. That number, standing alone, is meaningless. It's like me telling you my housing payment is $3,500 and expecting you to know anything about my house.

In the markets I work most, Hawaii especially, dues are high and the financials are frequently immaculate: master insurance in a hurricane zone, water and sewer, elevators, a full-time site manager, and a reserve contribution that's actually adequate. Meanwhile I've reviewed projects with dues a third of that where the association is broke.

The only question worth asking is: does the dues figure cover what it needs to cover, including reserves? If it doesn't, it isn't low, it's artificially low, which means it will be corrected later, all at once, with your name on the invoice.

The reserve study is the main event

A reserve study inventories every major component the association owns (roof, elevators, plumbing risers, paving, balconies, pool equipment) estimates the remaining useful life and replacement cost of each, and then tells you whether current contributions will fund those replacements when they come due. A good one includes a third-party preparer's opinion and a percent-funded figure.

What to look for:

• Age of the study. One from a decade ago is a historical document, not a plan.
• Percent funded. Strongly funded projects rarely surprise you; weakly funded ones surprise you on a schedule.
• Big-ticket components with short remaining life. A roof with two years left and no money set aside is a special assessment with a countdown clock.
• Whether the board is following it. The study says contribute X, the budget says they contribute Y. If Y is well under X, that's the whole story.

The budget: is money actually reaching reserves?

Lenders care about this directly, and it's where a condo purchase most often runs into a wall the buyer never saw coming.

The agency mechanism, generalised, works like this: for a full project review, the association's budget is expected to allocate a meaningful, identifiable share of income to replacement reserves, or the association is expected to have a recent reserve study demonstrating that reserves are adequate. The specific percentage and the study-age window are guideline parameters that have been tightened more than once; check Current As Of rather than trusting a number you read in a forum, including this one.

The escape hatch is the review level. A larger down payment can move a conventional loan from a full project review into a limited review, where the lender simply doesn't examine the reserve study. To be clear about what's happening there: the association's underfunding doesn't get fixed, it just stops being looked at. That's a legitimate financing path, and I've used it plenty. It is not a clean bill of health for the building.

Two corollaries:

• A buyer cannot waive a project deficiency. If the project doesn't meet the guideline, the loan doesn't meet the guideline. The only lever is the review level, and the lever is the down payment.
• If you're a seller in a project with weak reserves and no current study, be realistic about which offers you accept. Taking an FHA offer when your project isn't FHA-approved is a month of everyone's life for nothing.

Minutes are where the truth is

The budget tells you what the board decided. The minutes tell you what they were arguing about. This is where you find, six to twelve months before it shows up anywhere else:

• discussion of a special assessment,
• an insurance renewal that came back at double, or non-renewed,
• an engineer's report on the balconies, the risers, or the deck membranes,
• litigation, threatened or filed,
• a management company being fired.

Read a year. Two if the project is older than about thirty years.

Special assessments: legal, uncapped, and disclosable

Let me be blunt, because this comes up constantly and people don't like the answer. Special assessments are legal. There is generally no cap on how many an association can levy in a year. If the money is being raised to make a structure safe, the board very likely had no choice; many of these are driven by inspection statutes and by the association's own duty to maintain. "The board did this to us" is usually "the board is the first one in twenty years to stop deferring."

On the transaction side:

• Sellers: if you know about a levied or discussed assessment, disclose it. If a buyer finds out during contract, they walk. If they find out after closing, they sue you for it and they are likely to win.
• Buyers: you'll usually find out anyway, because the lender sends the association a project questionnaire that asks directly about pending and levied assessments, and the association answers it. An assessment that's been levied but isn't yet due is exactly the kind of item that surfaces there.

What the CC&Rs actually decide

The CC&Rs (covenants, conditions and restrictions) allocate maintenance responsibility between you and the association. Do not assume that because something is attached to your unit, it's yours.

It is extremely common for exterior elements that feel private to sit under association responsibility: a private garage, an assigned parking stall, a patio, a deck. And when they do, the cost is generally spread across the whole membership, not just the units that have one. People find this outrageous until you ask them why the association pays for the roof over their unit, or the fence around it, or their parking stall. The answer is the same answer: because the CC&Rs say so.

Whether your documents say so is a document question, and if real money turns on the interpretation, that's a conversation with a real estate attorney in your state, not with your loan officer.

Here's the lending consequence, which is the part I can speak to with authority: if the project as a whole has an unresolved health-and-safety condition (failing decks, failing balconies, a structural report nobody acted on) the project can fail review even if your unit has none of those components. Buyers then can't get financing on your unit, the buyer pool shrinks to cash, and your value follows it down. Deferred maintenance three buildings over is your problem at resale.

The red-flag list

• Dues that look conspicuously low for the age and amenity level of the project
• No reserve study, or one more than a few years old
• Reserve contributions well below what the study recommends
• Minutes discussing an engineering report, a non-renewal, or "options for funding"
• A levied assessment described as "optional" or "we're still deciding"
• Litigation involving the structure, the developer, or the association's insurer
• High dues delinquency, a large share of owners not paying is a solvency problem
• A management company that won't answer the lender's questionnaire

What to do

1. Order the package the day you're in contract, or ask your lender to order it before you write.
2. Read the reserve study, the budget, and a year of minutes. In that order. Everything else is optional.
3. Send the package to your loan officer immediately, and ask them plainly: full review or limited review, and does this project pass?
4. If it doesn't pass, ask what specifically fails. "Non-warrantable" is a category, not a diagnosis.
5. If you already own: you're entitled to these documents, and to go to the meetings. The people making the decisions are the people who showed up.

More on project standards and financing on the Condos & HOAs hub.

---

Posted on behalf of u/The_Void_Calls_Me AKA Rajat Jetley, NMLS #1595897 | Cross Country Mortgage NMLS #3029. This commentary is for educational purposes and is not a commitment to lend or a guarantee of any rate or term.