The community has only 2 units. Is HOA required?

8 Replies

I am buying a new construction duplex from a builder. However, each unit of this duplex has its own property ID (aka parcel ID or folio ID), so they are 2 properties technically, and they are called "condo" in the county record. 

The question is why there is a HOA on these 2 units? It makes my insurance complicated because I need to inherit HOA master insurance policy from the builder and buy 2 other HO3 policies each to cover interior of each unit. Also I was told that I need to pay annual fee to our state to keep the HOA (corporate) active.

Lender told me that I can buy 2 regular DP3 insurance policies each to cover both interior and exterior of each unit only if HOA document allows each unit to ensure on its own. So I need to pay an attorney to draft the HOA document for me then?

I don't understand why HOA is needed. Can I just get rid of HOA (as I will be the owner of this entire community which only has these 2 units)?

@Weng L.

I seen quite a few posts where investors who own regular duplexes want to go through the trouble and expense of separately the unit out, i.e. set up an HOA, have separate ID's set up etc. In your case, it's done for you already. But operationally, I would never want to be in an 2 member HOA, where almost everything had to agreed to by the other owner, if the condo units are owned separately. Things could get messy in the event of fires, accidents, resulting insurance claims for example.

But, apparently, there are procedures out there if it gets to be a pain. See Google page on Dissolving HOA in Florida

On the other hand, real estate prices are getting so sky high that it's easier to unload a single condo than a doubly expensive duplex. You might even get a better return over time, i.e. selling two condos compared to one duplex. So a little hassle on getting two insurance policies, maintaining the paperwork required of a HOA may be worthwhile and profitable, and you might be able to automate the above processes, or someone can handle the paperwork for an annual fee. There are services out there that handles filing annual corporate reports and paying annual fees.

Weng,

I insure two, 2 unit associations. They differ greatly in how the insurance is handled. The HOA documents (bylaws and declarations) spell out what the HOA and what the unit owners are responsible for (from an maintenance, Insurance, and ownership perspective).


In one assocation, the unit includes all things within the unit, the exterior walls, roof, etc. There is one common wall and that is shared 50/50. That setup does not leave any property for the HOA to insure. The HOA has a Liability exposure that needs to be covered.

In the other association, the building is the responsibility of the Association and the unit owners are only responible for their contents. There the HOA has to insured the building and their Liability.


Depending on the documents of the HOA you are purchasing, it could be either of the above or somewhere in between.


If you own both units, you could amend the bylaws to suit your needs.  Your attorney could give you an estimate of the cost and complexity of doing that.

Originally posted by @Frank Chin :

@Weng L.

I seen quite a few posts where investors who own regular duplexes want to go through the trouble and expense of separately the unit out, i.e. set up an HOA, have separate ID's set up etc. In your case, it's done for you already. But operationally, I would never want to be in an 2 member HOA, where almost everything had to agreed to by the other owner, if the condo units are owned separately. Things could get messy in the event of fires, accidents, resulting insurance claims for example.

But, apparently, there are procedures out there if it gets to be a pain. See Google page on Dissolving HOA in Florida

On the other hand, real estate prices are getting so sky high that it's easier to unload a single condo than a doubly expensive duplex. You might even get a better return over time, i.e. selling two condos compared to one duplex. So a little hassle on getting two insurance policies, maintaining the paperwork required of a HOA may be worthwhile and profitable, and you might be able to automate the above processes, or someone can handle the paperwork for an annual fee. There are services out there that handles filing annual corporate reports and paying annual fees.



@Frank Chin:

You misunderstood my post. They are 2 properties. I am not gonna covert them into one duplex. They are 2 deeds and can be sold separately.

I am buying both units using 2 conventional loans, lender does not require any HOA doc nor has to review any HOA financial status because according to Fannie Mae/Freddie Mac guidelines, reviewing HOA is waived if number of units in the community is 4 or less. So HOA is not needed to complete the purchase and the loan.

I want to get rid of HOA for 2 reasons
1) The existing HOA mater insurance policy (commercial) is expensive ($5,000/yr) with very high hurricane deductible (5%) and covers exteriors only; besides I have to buy another 2 residential HO3 insurance policies, each to cover interior of each unit at $600/yr per unit. If I can use regular residential insurance DP3 policy, that covers both exterior and interior, I only have to pay $1,250/yr on each unit with 2% hurricane deductible, each policy covers both interior and exterior of each unit. I asked the lender if I can buy such 2 policies, lender responded that only if HOA allows each unit to insure its own exterior. This is how HOA comes into the game of this transaction.
2) The existing HOA document has 80+ pages and is a scanned version (so not text searchable), I don't have time to read all 80+ pages and site down with an attorney to modify item by item to what I need. And if one day I have to file a claim of loss or I get suited for certain liability issue, I will have more work to do because I will have to communicate with 2 insurance providers (one commercial and one residential) to coordinate.

The is why I wonder if HOA is needed. If it is not needed, why bother to spend money and time with an attorney to amend the bylaws to suit my needs, filing annual corporate reports and paying annual fees?





 

@Weng L.

If you own both properties, then you can go ahead and dissolve the HOA as you have 100% voting power. Would need an attorney to assist you.

As I said, I will never purchase a property that is in a 2 member HOA as one member has veto power over the other. The most common situation are duplexes where people want to convert to 2 separate properties. It seems not to be your case.

Good luck.

@Weng L. @Frank Chin is correct above^. If there is actually an HOA there will be a Declaration, Articles and Bylaws that will contain a procedure for dissolving the HOA. The threshold for this is usually very high (75-90%), but you have 100% ownership so that should not be a concern. You will have to follow the procedure within the governing documents to dissolve the HOA. This could entail sending notices to yourself for a meeting that only you will attend and only you will be voting at... *This blog post is not intended to be legal advice. Please confer with your own counsel before taking any legal action.*

Originally posted by @Stanford Rowe :

@Weng L. @Frank Chin is correct above^. If there is actually an HOA there will be a Declaration, Articles and Bylaws that will contain a procedure for dissolving the HOA. The threshold for this is usually very high (75-90%), but you have 100% ownership so that should not be a concern. You will have to follow the procedure within the governing documents to dissolve the HOA. This could entail sending notices to yourself for a meeting that only you will attend and only you will be voting at... *This blog post is not intended to be legal advice. Please confer with your own counsel before taking any legal action.*

I'm not a lawyer but understand that HOA's can be and dissolved for a variety of reasons. See Dissolving HOA's OP certainly can do it as she's owns 100%, both units. There's generally a 80% rule. I have read of many difficulties operating 2 unit HOA's where say wanted to have a common area fixed, like a driveway, the other owner is in financial difficulty, thinks you can wait a few years, says NO. 

I bought a condo to live in soon after I married. Turns out most of the owners in the complex are young like me, cannot afford high HOA fees, always turn down fee increases. We have central heating, lighting for common areas for a multistory building, and found out gas and electric faced a cutoff as the HOA is months behind in paying bills. They have to do special assessments to pay utilities. Unbelievable. Thankfully, had to relocate for a promotion and sold the condo.

I retired now and don't want to share a 2 member HOA with a young struggling condo owner and wind up subsidizing him.

 

Thank you @Frank Chin @John Mocker @Stanford Rowe

I see that in the link Dissolving HOA's  you provided, it says "If the homeowners association then doesn’t pay its annual corporate fee to the state, Florida will administratively dissolve the HOA."

Apart from not paying annual corporate fee to state of Florida, do I need to record a updated HOA doc in country official record?

Right now the legal description of the 2 units are "789 CONDO UNIT A PER CDO INSTR# 123456789" and "789 CONDO UNIT B PER CDO INSTR# 123456789" where the instrument #123456789 is a recorded 87 page HOA doc including all regulations, definitions, HOA hazard insurance, HOA fee, voting, bylaw, site plan, survey, etc. If I want to get rid of all regulations, insurance, HOA fee, bylaw, etc, and write a 1-page HOA doc such as "There is no association. Owner of each unit is responsible to obtain insurance. Each unit is responsible to maintain and insure common area located therein the unit divided by fence and roof divider", will this be OK? Do I need this page to be recorded in county record and update legal description of the properties to "789 CONDO UNIT A PER CDO INSTR# {a new instrument number}"?

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