By Ed Collins
Vice President of the Madison Homeowners Association

Not necessarily, but you have to do your homework. When it comes to purchasing real estate in communities with a Homeowner Association (HOA), consumer protection is virtually nonexistent in Alabama compared to many other states where it is a statutory right.

Lack of disclosure and accountability of homeowner funds, coupled with delayed transfer of common property from the Developer, or Declarant, to the HOA, places homeowners at risk for loss in the biggest investment most of them will make in their lifetime. However, this only represents a few of the associated hazards.

Many communities with HOAs offer access to amenities through the payment of dues that are low-cost when compared to the expenditure to purchase these amenities as an individual.

HOAs administer and manage maintenance and security of amenities such as clubhouses, tennis courts, lakes, pools, parks, retention ponds and entrance signage. However, when it comes to amenities, not all HOAs are created equal. Some have lavish pools and clubhouses while others have modest facilities or just grounds and signs to maintain.

HOAs also protect their members' investments through enforcement of Community Covenants and Restrictions (CCRs) and maintenance of architectural control. Their governing bodies are made up of Developers, homeowners or a combination of both. Some believe Developers often exercise too much fiscal and architectural control for too long, and are poor managers of homeowner money [dues].

On the other hand, Developers will say they have a tremendous investment at risk and need the control they generally grant themselves in CCRs; but, there must be some common ground. There are many well run, fiscally sound communities managed at arm's length by Developers or boards that have transitioned to homeowner control.

Another reason Purchasers end up at risk is that they are generally uninformed, misinformed and most often perform little due diligence prior to a purchase. They more often focus on curb appeal, location, schools, and nearby amenities and make unwise decisions while underlying issues could surface later that could ruin their investment.

Most Purchasers are way too trusting, relying on verbal representations, promotional material, and misplacing their faith in professionals they presume are looking out for their best interests. They often mistakenly assume Alabama offers the same level of consumer protection afforded in more consumer-oriented states.

One person with whom the Purchaser places their trust is the real estate professional. They are potentially at risk by not identifying and disclosing information to the Purchaser that may be considered material in nature. For a Purchaser, a material fact is generally considered as anything, if known, which might cause them to make a different purchase decision. Issues can run the gamut including: undisclosed legal issues, special assessments, amount of dues, other recurring fees and much, much more. Purchasers should exercise due diligence when considering a purchase in an HOA community and look for a real estate agent who is well informed, recognizes the risks, and will protect their interests.

Both real estate professionals and Purchasers are generally "playing against the house" when it comes to accessibility of HOA information. They are often met with resistance or threats, or simply dismissed for asking questions.

Although the Alabama Real Estate Commission has no jurisdiction over how HOAs are managed, nor is there a standard of practice or sufficient case law in this area, real estate companies are starting to create their own disclosure and contingent offer forms to better serve the consumer and mitigate professional liability.

Lenders are doing likewise to insure HOA communities are well capitalized and not plagued with issues that could reduce their borrowers' equity, risking their investment.

Purchasers are becoming better educated consumers and feel they have an intrinsic right to Disclosure, Accountability and Protection. They, not the Developer or anyone else, will ultimately decide if their best interests have been served...especially those Purchasers associated with BRAC.

While Alabama's lack of consumer protection is at the root of the problem, real estate and lending professionals appear to be taking the lead in clearing the path for change by creating their own disclosure forms and questionnaires without waiting on Montgomery to take action. Hopefully our public officials will be close behind.