When Your House Turns Out to be a Condo
And You Get Unexpected Bills
So you find your dream house. The offer has been accepted. As you prepare for the closing on your diamond in the rough, a vague memory occurs to you: Didn’t the realtor say something about the monthly fee in the neighborhood? Some technical talk about “platted subdivisions” being the old way, and “Site Condos” being the new? No big deal, right? Well … maybe.
At closing you sign so many documents that you get writer’s cramp. All is fine. But at some point a year later—or five years later—an invoice arrives in the mail. It literally says you’re legally bound to pay thousands of dollars in an “assessment” to catch up on association expenditures!! It seems the association got behind on maintenance, and you’ve been assessed a large sum, to cover long-ignored repairs. Or maybe improvements that you don’t want or need. You’re livid. You discover that what you think of as your dream house, is not actually a “house”, it’s a dream condominium.
Now please understand that this scenario is relatively rare, and certainly unnecessary and avoidable. Site condominiums really are great, really do afford you many protections, and there is nothing better or worse, or scary, about a site condo versus the platted subdivision of your childhood (or a regular condo attached to others). And you’ve not done anything wrong if you didn’t understand this stuff. But like many things in life, you need to educate yourself, be aware, and be involved, so that you don’t find yourself in a costly mess down the road.
So what is a site condo, and why do they look like regular houses?
A site condo is a single-family, totally detached, stand-alone home, not part of or attached to other buildings, and with no shared garage. It is governed by the Michigan condo act of 1978, which requires an association be formed for the benefit of homeowners—literally a corporation—to manage the communal affairs. A neighborhood association is one thing; those are usually informal, and voluntary. A condo association is quite another; it’s formal, and has legal power, including to assess you fees. Sometimes you’ll hear condominium owners’ associations referred to as HOAs, or “Homeowner Associations”, and they have special abilities to enforce rules, govern, and control all related finances. Further, if your association owns and manages amenities like clubhouses, pools, roads, or other buildings and space, the financial impacts can be substantial.
There are four important elements to watch, especially where there are significant budgets and assets involved:
The first is obvious. You, as an owner, have to pay your share for those substantial expenses, in a share defined by your condo master deed and bylaws—which should always be readily available to you. That’s why you have to pay “dues”. Even without clubhouses, pools, and facilities to maintain, there are usually at least some common elements to keep up—and always accounting, legal, enforcement, compliance, and general administrative costs that have to be covered.
The second element to watch is the problem of an association so “chill” that it let’s things go. The term used by property managers is “deferred maintenance”. With no planning, no savings, and dry rot in the rafters—your surprise bill for that new clubhouse roof could be substantial. And there is no way out; your legal bound. A lien can be placed on your home, with penalties, if you don’t pay.
The old adage warns us not to be penny wise and pound foolish, and it’s true for condos. The problem is that some condominium associations get behind because they’re under pressure to keep dues low. Then, without much income, they skimp on maintenance over time—until they have to pay the piper. While some associations don’t mind “special assessments”—a big bill that comes and is due all at once, or in a set of additional payments—most HOAs dread them like the plague, and try to forecast, budget, and plan so as to avoid surprise bills for owners. (Note that the law requires 10% of your annual budget to be in a reserve fund—although often that’s nowhere near enough.)
There is a third challenge: your association could build something, or make a large improvement, and legally you are bound to pay for it. Granted, there have to be notices, meetings, and processes followed, but if you don’t participate, and pay attention, it’s literally possible for someone to build a great new pool (clubhouse, room, fiber network, parking lot, etc.)—and leave you on the hook for something you didn’t know about, or maybe even want.
The fourth element to watch, is that of the rules and enforcement procedures that govern your association. Rules matter, and most are for very good reasons. But if you want to have input, and a voice in your community, you need to participate. In theory, your association could pass and enforce ridiculous and onerous rules and fines. Or alternatively, they could completely fail to govern, or fail to enforce rules that protect your investment.
The moral of the story is to be involved, and educate yourself. You don’t have to be a board member, or bylaws expert, but maybe at least consider attending board meetings. At the very least read the minutes and any correspondence. Condominiums and site condos are lovely ways to ensure and protect your investment, and connect with your community too; but like any organization, they’re only as good as the people and processes behind them.