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Covenants, Conditions & Restrictions
Every condo development is governed by a set of bylaws that the developer files with the state before sales can begin. Referred to as the Covenants, Conditions & Restrictions (CC&Rs), they establish basic rules for ownership, operation and management, and provide for transition to a Homeowners Association (HOA) board, which supervises every aspect of the project.
Once the development is turned over to the owners, the new HOA is free to draw up its own, more specific set of rules, which homeowners must agree on.
Because condos really are set up for the "common good," buyers should expect to live with some limits on personal freedom -- such as no political banners or Christmas lights, no broken-down cars parked out front, and no loud parties.
More than 22 million homes in the U.S. are in neighborhoods with homeowner associations, according to the Community Associations Institute, a trade organization that has an Oregon chapter. There are about 2,000 HOAs in the Portland area, according to Rich Thompson of Regenesis, a Portland-based homeowner-association management consulting firm.
HOA Dues
HOA dues are assessed monthly and often are based on square footage of the owner's unit. The dues typically pay for water, sewer, trash, management, insurance and exterior maintenance, though some HOAs also cover such things as cable TV, electricity, security services and other items. Dues are factored into the equation when a lender decides how much you can borrow, an important fact to know before talking to a mortgage lender. Unlike mortgage interest, HOA dues aren't tax-deductible.
HOA dues don't cover anything inside your unit, such as water damage from a leaking hot water heater. Buy your own homeowners insurance policy and check with your insurance agent to see if you need a "bridge" policy that would cover the deductible on the overall HOA insurance policy if needed.
Oregon Law for Reserve Fund
For would-be buyers, assessing a condo conversion for potential problems can be tricky. HOAs are required by law to set aside a certain amount from each month's dues for a "reserve fund" meant to cover future problems and major maintenance such as painting and re-roofing. A new Oregon law that takes effect in January 2006 requires new HOAs to include a maintenance plan as part of their reserves.
Before the law takes effect, homeowners should take a careful look at the reserve study, a document that estimates how long different elements such as sidewalks and roofs will last, and how much it will cost to replace them. HOA dues that are too low to cover these future costs often mean that homeowners will be faced with hefty special assessments and higher dues.
Buyers should get three sets of documents before putting down their earnest money:
Community Associations Institute
These can be hard to interpret so it's a good idea to have them reviewed by a CPA or an attorney familiar with condo law. The Community Associations Institute (CAI) is a national professional group that's a good resource for finding these professionals.
The Oregon chapter of CAI is located at 7327 SW Barnes Road, Portland, OR 97068. Phone: (503) 531-9668 or toll-free at (877) 224-6750. Web Site: http://www.caioregon.org
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