Real estate investors who have a few condominiums in their portfolios, are used to reviewing homeowner’s association documents prior to making an offer to buy a property. Lenders too want to review those same documents to make sure they square with existing lending guidelines. But a HOAs and real estate investinghomeowner’s association, or HOA, isn’t relegated to a condo—an HOA can exist in other places.

Newer developments of single family homes often have an HOA whose sole function is to make sure existing HOA guidelines are followed by the property owners as well as maintaining the common areas in the neighborhood. HOA rules can be mostly anything the developer thinks up but whatever the rule, it must apply equally to all property owners in a non-discriminatory fashion. For example, an HOA rule might prohibit a recreational vehicle from being parked in front of the house. In fact, an HOA rule could restrict any owner’s vehicle from siting out by the curb. Is the grass too high? Some rather restrictive rules actually limit how high the grass can be on an owner’s lawn and if the owner doesn’t cut it, the HOA can mow the lawn and send the owner the bill.

An HOA may also be responsible for the operation and maintenance of neighborhood amenities and common areas. Perhaps there’s a community pool, a park or a recreational center. Property owners pay monthly HOA dues to the HOA who then use those funds to finance sidewalks, swimming pools or any other areas equally shared by the property owners.

A common HOA guideline requires that the HOA carry a superior lien position should the property owner ever fall behind on the HOA dues. While an investor may not initially care about such a clause, lenders who review HOA documents may not allow such language and refuse to place a mortgage which allows a subordination of the lender’s position.

HOA documents should be reviewed and reviewed carefully. Many times if you get too far along in the process only to find out later about an objectionable HOA rule, you might end up losing your deposit and the cancellation of your contract.