Homes located within developed subdivisions in Texas are often subject to mandatory membership in the subdivision’s Homeowners’ Association (HOA). The membership requirement is typically found in a restrictive covenant or other recorded instrument that affects the house itself, meaning that the owner of the home cannot sell the property without the buyer being subject to the membership requirement. The buyer must accept joining the HOA and all of the obligations that come with it as a condition of the purchase.
HOAs sometimes impose charges on new owners when a property within the HOA is sold. For example, an HOA’s rules may permit it to collect an advance deposit of the new owner’s dues for the following year. They might do this to build up a source of capital that the HOA can use to develop the subdivision and carry out the HOA board’s regular duties, such as maintaining the common areas. There may also be various transfer fees, fees to update the HOA’s membership records, and more.
The money that an HOA collects upfront from new purchasers is commonly called the HOA’s “buy-in” or transfer fee. The buyer in a home purchase is typically responsible for paying the buy-in, since they are the one moving in and joining the HOA; however, this can be an object of negotiation between the buyer and seller. A seller may offer to pay some or all of the HOA buy-in as an incentive to the buyer, just as they may offer to pay the premium for the buyer’s policy of title insurance or to pay for obtaining a new survey of the property if the existing one is no longer useable.
The most commonly used home purchase contract in Texas is the “One To Four Family Residential Contract (Resale)” prepared and promulgated by the Texas Real Estate Commission (TREC) for use by the public. When the property being sold is subject to mandatory membership in an HOA, the TREC Contract is typically accompanied by the “Addendum for Property Subject to Mandatory Membership in a Property Owners Association,” also prepared by TREC. The most recent version of the addendum as of the date of this post addresses HOA buy-in in Paragraph C, which reads in relevant part:
“C. FEES AND DEPOSITS FOR RESERVES: Buyer shall pay any and all Association fees, deposits, reserves, and other charges associated with the transfer of the Property not to exceed $ _____________ and Seller shall pay any excess.”
The number in the blank represents the maximum amount of the HOA buy-in for which the buyer is responsible. If the buy-in exceeds this amount, the seller must pay the excess — no matter how large that excess is. Sellers should be confident that they know how much their buyer’s buy-in is going to be and that the number placed in that blank exceeds that amount (or, if the seller intends to pay some of the buy-in as a concession, that the number in the blank correctly reflects the amount they do not intend to pay). The seller should not permit the blank to go unfilled, as it may result in the seller being responsible for one hundred percent of the buy-in. Buyers, for their part, should make sure that they have sufficient information from the sellers and the HOA prior to closing to calculate their anticipated buy-in and factor that amount into their ability to complete the purchase. Buyers closing with a title company should ask whether the HOA’s buy-in is included in the closing costs or whether they will be expected to pay the HOA out of pocket for any of the buy-in after closing.
If you are purchasing or selling a home in Texas subject to HOA membership, an experienced real estate attorney can help you determine the amount of HOA buy-in associated with the transaction and how to properly allocate who pays for it.
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