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Diligence

HOA Red-Flag Checklist

Texas HOAs are private governments with the power to fine, lien, and even foreclose. Skipping this 30-minute review is the most common $20,000 mistake we see.

What you're legally entitled to receive

Texas Property Code §207 requires the HOA (or its management company) to deliver a Resale Certificate upon request, typically within 10 days. You - or the seller per your contract - pay $200–$450. The package includes:

  • Current balance owed by seller (transfer fees, dues, fines)
  • Most recent budget and most recent year-end financials
  • Declaration of Covenants, Conditions, and Restrictions (CC&Rs)
  • Bylaws and architectural guidelines
  • Insurance certificate
  • Reserve study (if one has been performed)
  • Any pending litigation involving the association
  • Notice of any planned special assessments

The 12 red flags - go through every one

  1. Reserves below 50% funded. Look at the reserve study or balance sheet. Under 50% means a special assessment is likely within 5 years.
  2. No reserve study in past 3 years. The board is flying blind on future capital needs.
  3. Special assessment in past 5 years > $1,500/unit. Often signals chronic underfunding, not a one-time event.
  4. Litigation pending. Construction defect or builder lawsuits can wipe out reserves and trigger assessments. Read every pleading.
  5. Dues increased > 15%/yr two years running. Future increases likely.
  6. Less than 70% owner-occupied in a planned community. Affects FHA approval (more critical in condos than single-family HOAs).
  7. Self-managed instead of professionally managed for > 100 units. Higher risk of board mismanagement.
  8. Frequent board turnover. Pull the past 3 annual meeting minutes - chaos shows up there.
  9. Master insurance deductible > $25,000. Your HO-6 policy needs to cover that gap. Some lenders flag this.
  10. Owner fining pattern is hostile. Look at fines collected line on the income statement. Heavy fining culture predicts disputes.
  11. Short-term rentals allowed. Higher wear, transient occupants, sometimes party houses. Or banned - affects your investment optionality.
  12. Restrictive covenants that conflict with your plans. Detached structures, exterior color, pets > 30 lb, RVs, even basketball hoops. Read the CC&Rs.

The 5 questions to email the property manager

1. What is the current operating budget surplus/deficit YTD?
2. What is the current reserve fund balance and target?
3. Have any special assessments been discussed at recent board meetings?
4. What is the date and outcome of the most recent reserve study?
5. Are there any active or threatened lawsuits involving the association?

How to bail out cleanly

The TREC Addendum for Property Subject to Mandatory Membership in a Property Owners Association (TXR 1922) gives Texas buyers a separate review window - typically 3 days after receiving the HOA documents - to terminate without penalty. This is independent of your option period. If you discover deal-killers in the HOA package after option expires, this addendum is your escape.

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