HOA Buy In

We are considering a buy in of say 1/2% of the selling price. What is your opinion of buy ins? Does your association have such and if yes, the amount? Would you post please your docs wording on such.
Thanks

In the real world they shouldn't be needed but we amended our docs to include them as a safety net for bad Boards that don't do their job and fund Reserves. Our community failed to fund Reserves adequately since the neighborhood was started in 1982. There are good arguments on both side over this issue but we ultimately chose to to implement the fee. Here's the wording in our docs:

... Upon the purchase or transfer of ownership of a Residence, each Residence owner shall deposit with the managing agent of the property, or as may be otherwise directed by the Board, an amount equal to an amount equal to one half of one percent (0.5%) of the purchase price of such Residence owner’s unit. Such amount shall be held, together with the amounts similarly deposited by the other unit owners, as a contingency reserve and used exclusively for purposes outlined in this document. To the extent that the said reserve fund may be depleted, or in the judgment of the board may be adequate, the board may increase the same by an assessment to the members in the proportion of their ownership interest in the Common Elements. The said reserve fund and other funds on hand from time to time shall not be refunded to a unit owner in the event he sells his unit.

I’m not a fan of this – I think new owners should start contributing when they join the association, not before. It’s not their fault the current or previous owners and/or board didn’t do their job to ensure reserves were funded properly.

In fact, let’s flip the question – what does everyone think about the association levying some sort of fee to the selling homeowner, perhaps the 1% of the selling price John mentioned, or a specific amount (e.g. $5K) whichever is higher (or lower)? Or, if there’s a special assessment, the selling owner must fork over half the assessment (that way, he/she/they can’t get away with leaving to avoid paying). Yes, I know, all hell would break loose, but putting this idea out there might persuade HOAs to take reserves seriously.

These capital contribution fees are pretty common around here. Ours is two months' worth of the regular assessment amount (in in a condo). And, as someone observed in another thread, a few hundred dollars barely registers when you're buying a home. Note: since this is mandated by our CC&Rs, any change would require approval of at least 75% of owners (and possibly 100% since there is language stating that changes in how units are assessed require unanimous approval from the membership).

Here's the wording in our CC&Rs under the article about assessments:

Section 11.12: Assessment at Closing. At the closing, each purchaser of a Unit is required to pay a prorata share of the condominium assessments due in the month of closing. Additionally, at the time of such closing, the Purchaser of such Unit is required to pay a sum equal to two (2) times the monthly condominium assessment due on his Unit as such Purchaser's initial contribution to the working capital of the Association. This amount will be used by the Association for its operating expenses. Such payment is not an advance payment of assessments, and it will not be held in any sort of trust or reserve account.

Note: this fee goes to operating expenses. This makes sense. Things may have changed since I was on the board, but we don't charge for transfer fees or other expenses resulting from the sale of a home. It is appropriate for these costs to be paid by the person buying the home, and not the membership that doesn't benefit from the sale in any way.

Also, *everybody* pays this fee. Nobody is benefiting at the expense of anyone else if the fee was mandated by the CC&Rs from the community's start. There's nothing magic about it. Either you pay that or you make up the shortfall in other ways.

The only time there could maybe be an issue would be if there is a change after a community has been in existence for a while. Does this create two classes of ownership? If all current and future owners are assessed the new fee, I'm not seeing it. The potential issue would be if the community eliminated such a fee, since new buyers would benefit at the expense of current owners, If this happened in my community, we would almost certainly start charging buyers for expenses incurred by the association. But I doubt such a change would be approved by the membership - I expect the vote would be a unanimous NO.

Do other South Carolina condo associations have a buy-in this large? If so, then this argues for amending the Declaration to impose such a buy-in. I don't see such a buy-in creating two classes of owners. The fee is imposed on a buyer, who is not yet an owner. I don't see anything legally wrong with this in South Carolina. I figure most potential buyers won't pay much attention to this if they already just love your association's condos compared to other condos. I would restrict the use of the buy-in solely to reserves, like many declarations require.

Here's the language from our documents. We do have a capital contribution and raised it up when we redid our documents a couple of years ago. It's very common in Florida to have a capital contribution. I believe our current amount is $2500.00 (the lowest priced units in our community currently sell for over $450,000) and that amount aligns with other communities similar to ours.

6.9 Working Capital Fund. The Master Association has established a Working Capital Fund. Contributions to the Working Capital Fund will be collected by the Master Association from each Parcel purchaser, at the time of conveyance, in such amount as is established by the Board from time to time by written resolution adopted at a Board meeting, provided, however that the Board may not increase the amount of the Working Capital Fund contribution more than once in any 12-month period. Each Parcel’s share of the Working Capital Fund shall be collected and transferred to the Master Association at the time of closing of the sale of each Parcel. The purpose of this fund is to assure that the Board will have cash available to meet any legitimate Master Association expense, or to acquire additional equipment, property, or services deemed necessary or desirable by the Board. Amounts paid into the Working Capital Fund at closing are not to be considered advance payment of any Assessments under this Article 6 and are not refundable or transferable. For purposes of this Article, the term “conveyance” shall mean the transfer of record legal title to a Parcel by deed or other authorized means of conveyance, with or without valuable consideration, and shall also refer to a transfer of possession and beneficial ownership by means of an agreement for deed. The following conveyances shall be exempt from payment of the Working Capital Fund contribution: (a) between and among co-Owners of the same Parcel being transferred; (b) to the Owner’s estate, surviving spouse or other heirs, resulting from the death of an Owner; (c) to a trustee or the Owner’s current spouse, solely for bona fide estate planning or tax reasons; (d) to a mortgagee, the Master Association, or a Condominium Association, pursuant to a final judgment of foreclosure or deed in lieu of foreclosure; and (e) to an Owner who owned and occupied a Parcel in Reflection Lakes within the ninety (90) days prior to the date of the subject conveyance, which Owner previously paid a Working Capital Fund contribution upon acquiring such prior Parcel within the Community. It is the responsibility of the Owner to apply with the Association for an exemption under any of (a) through (e) above, prior to the date of conveyance. Provided, however that upon a transfer that occurs following the exempt transfers described in (a) through (e) above, the Working Capital Fund shall be due and payable.

I am liking the idea of a buy in being 3 months dues. In our case it would be $300.00.

It could well be negotiable between buyer and seller. I have seen it become a negotiable issue in a long term financed Special Assessment.