7 Types of Community Associations And How They Affect Home Closings
Community associations are organizations that are formed to manage and maintain a specific community, typically a neighborhood or housing development, which is often called common-interest development (CID). Each type of community association has its own set of rules, regulations, and fees.
Oftentimes, the responsibility to acquire documents from a community association falls onto the escrow officers’ shoulders. The struggles include finding the HOA(s), and their contact information, communicating and following up with the HOA and the seller to make sure the documents are in good shape, and all dues are paid, which amounts to significant time spent on the whole document acquisition process.
If the escrow officer fails to obtain the required community associations’ documents, it could potentially result in legal and financial complications for the buyer and the seller, and, in some cases, delays or even cancellation of the sale.
Knowing the ins and outs of different types of associations ensures that the home closing goes smoothly and successfully. We created a guide to all the types of community associations to help you navigate the HOA world like a pro.
1. Homeowner’s Association (HOA)
Homeowners associations, or HOAs, are one of the most well-known types of community associations. An HOA is the governing body of a planned residential community or common interest development. HOAs can be professionally managed or they can be run by the HOA board.
The HOA board is typically comprised of volunteers (homeowners) in a specific neighborhood or housing development and is responsible for maintaining and managing common areas, such as parks, swimming pools, and community centers. HOAs may also set rules and regulations for residents, such as restrictions on noise levels or the types of pets allowed.
When closing a home within an HOA, in many cases, an escrow officer has to obtain all required HOA documents to ensure that the seller has no violations and that all outstanding HOA dues are paid for. HOA documents are also needed to inform the buyer of the HOA rules and regulations.
2. Condominium Association (COA)
Condominium associations are comprised of a group of unit owners set up to govern the common building(s) and elements of a condo development. COAs are similar to HOAs, but they are specific to condominium buildings or complexes.
COA documents differ from the HOA documents that you need to obtain at closing. The key difference between COA and HOA is the scope of ownership, in a condo members own their individual units and have a joint ownership interest in the common areas.
In an HOA, members own their property and their lot and the common areas belong to the HOA. COA documents may include additional information that is specific to condominiums. Both COA and HOA documents may include information about the association’s bylaws, covenants, conditions, and restrictions (CC&Rs), budgets, financial statements, insurance policies, and meeting minutes.
3. Master Association
A Master Association is an umbrella organization that oversees a larger area or group of associations. The Master Association maintains common facilities and amenities that serve multiple HOAs or condo associations within a specific area. For instance, if you live on a golf course, you might have an HOA that governs your house and a separate one for the golf course.
Homeowners are obliged to pay fees and assessments to both the Master Association and the sub-association, however, the system of allocating the assessments can depend on each association. The same goes for covenant enforcement, the homeowners might be subject to two sets of covenants and restrictions from both associations.
During the home closing, the process of obtaining documents from the Master Association may involve more parties and take more time. The Master Association and sub-association are not always managed by the same management company. And often, the Master Association and sub-association associated with a property each need to provide their own set of documents.
4. Cooperative Association (Co-Op)
A Cooperative Association is a legal entity, usually a corporation, that owns a building. Cooperative associations are typically found in multi-unit residential buildings, such as apartment complexes. In a co-op, residents own shares in the corporation that owns the building, rather than owning the actual unit itself, and are responsible for managing and maintaining it collectively.
To close the home sale, the escrow officer obtains the documents from the Co-Op to understand the terms and conditions of ownership. In addition to typical governing documents of an association, the Co-Op will typically also have a proprietary lease, which outlines the terms and conditions of ownership, as well as restrictions and obligations.
5. Civic Association
A Civic Association is a volunteer-based organization whose main objective is to improve the neighborhoods it serves by working with its members. Civic Associations may be involved in various activities, such as organizing community events, maintaining common areas, or providing security services.
Most of the time, a Civic Association is not involved directly in the sale of a property and doesn’t need to provide any specific documents or approvals for the sale to proceed. Whether or not the escrow officer needs to obtain documents from a Civic Association at-home closing will depend on a few factors, such as the specific requirements of the association and the location of the property.
6. Planned Unit Development (PUD)
Planned Unit Developments, or PUDs, are large-scale residential developments that are planned and designed as integrated communities and can contain many types of single-family homes, townhomes or condominiums, and commercial spaces. PUDs are designed to offer residents a mix of residential and commercial spaces. PUDs are typically run by an HOA, and the unit owners own both their lot and residence. HOAs manage common amenities and the residents pay HOA fees.
To close a home within a PUD, the escrow officer will have to collect the documents from the connected HOA. One indicator of whether a property is part of a PUD is if it’s labeled as a “condo” even though it appears to be a single-family home or townhome.
7. Recreation Districts OR Recreation Community
Recreation Districts are under the direct control and supervision of locally elected governments by registered voters who reside in the district. To successfully close a home within this type of community, an escrow officer needs to know the specific rules and regulations that govern the community.
Closing a home in an HOA community comes with additional requirements and responsibilities. Understanding how different types of community associations work helps collect all required documents on time and ensures a smooth closing process for all parties involved.
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