HOA Resale Package Deep Dive: Your Contingency Period Checklist

Detailed guide to reviewing HOA resale documents during contingency: financial analysis, reserve fund assessment, meeting minutes review, and red flag identification.

Tags:hoa, condo, resale-package, contingency, financial-analysis, due-diligence
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You're under contract on a condo. The HOA resale package arrives: 347 pages. You have 10 days to review it and decide whether to proceed. Where do you even start?

This article is your systematic guide to reviewing HOA resale documents during your contingency period. Unlike the pre-offer overview (see HOA Docs What to Check), this is about deep analysis of financial health, reserve adequacy, and hidden risks that could cost you thousands.

What you'll learn:

  • How to organize and prioritize 200-500 pages of documents
  • Financial statement analysis (what the numbers really mean)
  • Reserve study evaluation (is the HOA saving enough?)
  • Meeting minutes review (what problems are brewing?)
  • Red flags that should make you walk away
  • How to use findings in negotiations
  • When to hire professionals for review

This article is for: Buyers in contingency period who need to review HOA resale package and make a go/no-go decision.

Table of Contents

Your 10-Day Review Timeline

Days 1-2: Document Organization and First Pass

Receive and organize:

  • Create folder structure (Financial, Legal, Operational, Property)
  • Verify you received complete package
  • Identify missing documents
  • Request missing items immediately

Complete package includes:

  • Financial statements (2-3 years)
  • Current budget and prior year budgets
  • Reserve study (most recent)
  • CC&Rs, bylaws, rules
  • Meeting minutes (12-24 months)
  • Insurance certificates
  • Pending litigation disclosure
  • Special assessment history
  • Delinquency report
  • Management contract

First pass priorities:

  • Read executive summary (if included)
  • Scan financial statements for obvious problems
  • Check for pending special assessments
  • Review litigation disclosure
  • Note questions for follow-up

Seattle context: Washington law requires sellers to provide resale certificate within 10 days of request. Your contingency period typically starts when you receive complete package.

Days 3-5: Financial Deep Dive

Focus areas:

  • Balance sheet analysis
  • Income statement review
  • Cash flow assessment
  • Reserve fund adequacy
  • Delinquency rates
  • Budget vs actual comparison

Key questions to answer:

  • Is the HOA solvent?
  • Are reserves adequate?
  • Are assessments likely to increase?
  • Is a special assessment coming?
  • Are owners paying their fees?

Tools you'll need:

  • Calculator or spreadsheet
  • Highlighter for red flags
  • Notepad for questions
  • Prior year documents for comparison

Days 6-7: Reserve Study Analysis

What to evaluate:

  • Component inventory completeness
  • Remaining useful life estimates
  • Replacement cost estimates
  • Funding plan adequacy
  • Percent funded calculation

Critical calculations:

  • Current reserves vs required reserves
  • Funding level (should be 70%+ funded)
  • Projected special assessments
  • Deferred maintenance backlog

Days 8-9: Operational Review

Meeting minutes analysis:

  • Recurring issues or complaints
  • Board decision patterns
  • Owner conflicts
  • Maintenance problems
  • Upcoming projects

Insurance review:

  • Coverage adequacy
  • Premium trends
  • Claims history
  • Deductible amounts

Management assessment:

  • Contract terms
  • Service quality indicators
  • Turnover frequency

Day 10: Decision and Response

Compile findings:

  • List all red flags
  • Categorize by severity
  • Estimate financial impact
  • Determine deal-breakers

Your options:

  • Proceed as-is
  • Request repairs or credits
  • Negotiate price reduction
  • Add contingencies
  • Walk away

Financial Statement Analysis

Balance Sheet Evaluation

Assets to examine:

Cash and investments:

  • Operating account: Should cover 2-3 months expenses
  • Reserve account: Compare to reserve study requirement
  • Total liquidity: Operating + reserves
  • Investment allocation: Conservative for reserves

Example - Good vs Bad:

Good balance sheet:

  • Operating cash: $45,000 (3 months expenses)
  • Reserve fund: $850,000 (85% funded per study)
  • Accounts receivable: $5,000 (3% of annual assessments)
  • Total assets: $900,000

Bad balance sheet:

  • Operating cash: $8,000 (0.5 months expenses)
  • Reserve fund: $200,000 (35% funded per study)
  • Accounts receivable: $45,000 (25% of annual assessments)
  • Total assets: $253,000

Liabilities to examine:

Accounts payable:

  • Should be current (under 30 days)
  • Large balances indicate cash flow problems
  • Check for unpaid contractors or utilities

Loans and debt:

  • Purpose of debt (capital improvements OK, operating expenses bad)
  • Interest rate and terms
  • Repayment schedule
  • Debt-to-asset ratio (should be under 30%)

Deferred maintenance:

  • Not always on balance sheet
  • Check meeting minutes for discussion
  • Compare to reserve study component list

Income Statement Analysis

Revenue examination:

Assessment income:

  • Collection rate: Should be 97%+ of budgeted
  • Delinquency rate: Should be under 5%
  • Late fees: High amount indicates collection problems
  • Special assessments: Frequency and amounts

Other income:

  • Rental income (parking, storage, amenities)
  • Interest income
  • Laundry/vending
  • Should be stable and predictable

Expense examination:

Operating expenses:

  • Compare to budget (variance analysis)
  • Compare to prior years (trend analysis)
  • Look for unusual spikes
  • Verify major categories make sense

Major expense categories:

  • Management fees: 10-15% of budget typical
  • Insurance: Check for large increases
  • Utilities: Should be stable
  • Repairs and maintenance: Should match reserve study
  • Legal and professional: High amounts indicate problems

Red flags:

  • Expenses consistently over budget
  • Large legal fees (litigation)
  • Deferred maintenance (low repair spending)
  • Insurance premium spikes (claims history)

Cash Flow Assessment

Operating cash flow:

  • Should be positive every month
  • Negative months indicate problems
  • Seasonal variations are normal
  • Trend should be stable or improving

Reserve contributions:

  • Should match reserve study recommendation
  • Consistent monthly contributions
  • No skipped or reduced contributions
  • Adequate to meet future needs

Special assessments:

  • Frequency (more than once per 3 years is concerning)
  • Amounts (large assessments indicate poor planning)
  • Purpose (emergency vs planned)
  • Payment terms (lump sum vs installments)

Reserve Study Deep Dive

Understanding Reserve Studies

What it is:

  • Professional assessment of capital needs
  • 20-30 year projection
  • Component inventory and condition
  • Funding plan recommendation

Who prepares:

  • Reserve study professional
  • Should be updated every 3-5 years
  • Full study vs update study
  • Site visit vs desktop review

Seattle context: Washington law doesn't require reserve studies, but most well-managed HOAs have them. Lack of recent study is a red flag.

Component Analysis

Major components typically included:

  • Roof (20-30 year life)
  • Siding and exterior (30-50 year life)
  • Parking lot and paving (20-30 year life)
  • Elevators (20-25 year life)
  • HVAC systems (15-20 year life)
  • Plumbing and electrical (30-50 year life)
  • Decks and balconies (20-30 year life)
  • Amenities (pool, gym, etc.)

What to verify:

  • All major components included
  • Condition assessment reasonable
  • Remaining useful life realistic
  • Replacement costs current (not outdated)

Red flags:

  • Missing major components
  • Overly optimistic useful life estimates
  • Outdated cost estimates
  • No recent site inspection

Funding Level Calculation

Percent funded formula:

  • (Current reserves / Required reserves) × 100

Funding level benchmarks:

  • 100%+: Fully funded (excellent)
  • 70-99%: Well funded (good)
  • 50-69%: Moderately funded (fair)
  • 30-49%: Poorly funded (concerning)
  • Under 30%: Critically underfunded (red flag)

Example calculation:

Reserve study says HOA needs $1,200,000 in reserves today to be fully funded. Current reserve balance: $840,000 Percent funded: ($840,000 / $1,200,000) × 100 = 70%

Interpretation: 70% funded is acceptable but not great. HOA should be increasing reserve contributions to reach 80-100% over next 5-10 years.

Funding Plan Evaluation

Funding methods:

Full funding:

  • Goal: 100% funded at all times
  • Pros: No special assessments, stable fees
  • Cons: Higher monthly assessments
  • Best for: Well-managed HOAs

Baseline funding:

  • Goal: Maintain minimum balance
  • Pros: Lower monthly assessments
  • Cons: Special assessments likely
  • Best for: Younger communities

Threshold funding:

  • Goal: Balance between full and baseline
  • Pros: Moderate assessments
  • Cons: Some special assessment risk
  • Best for: Most HOAs

What to look for:

  • Funding method clearly stated
  • Contribution amounts match budget
  • Plan addresses underfunding
  • Realistic timeline to full funding

Projected Special Assessments

Check reserve study for:

  • Components with insufficient funding
  • Major projects in next 5 years
  • Estimated shortfall amounts
  • Recommended special assessments

Example:

Reserve study shows:

  • Roof replacement needed in 3 years: $450,000
  • Current roof reserves: $180,000
  • Projected shortfall: $270,000
  • Recommended: Special assessment of $270,000 or increase monthly assessments by $150/unit

Your action: Factor this into your purchase decision and budget.

Meeting Minutes Analysis

What to Look For

Recurring issues:

  • Same problems discussed repeatedly
  • Lack of resolution
  • Owner complaints
  • Maintenance delays

Financial discussions:

  • Budget concerns
  • Special assessment debates
  • Delinquency problems
  • Cost overruns

Maintenance and repairs:

  • Deferred projects
  • Emergency repairs
  • Contractor problems
  • Quality issues

Governance and management:

  • Board conflicts
  • Management company issues
  • Rule enforcement problems
  • Owner disputes

Red Flags in Minutes

Financial red flags:

  • Discussions of cash flow problems
  • Debates about paying bills
  • Delinquency rate concerns
  • Special assessment proposals
  • Budget deficit discussions

Maintenance red flags:

  • Deferred maintenance decisions
  • Emergency repairs (indicates poor planning)
  • Contractor disputes
  • Quality complaints
  • Safety issues ignored

Governance red flags:

  • Board member resignations
  • Management company changes
  • Lawsuits mentioned
  • Rule enforcement inconsistency
  • Owner revolt discussions

Example - Concerning minutes:

"Board discussed roof leak in Building C. Temporary repair approved ($5,000) but full roof replacement ($180,000) deferred again due to insufficient reserves. This is the third time this year we've discussed this issue."

Translation: HOA is underfunded and deferring necessary maintenance. Expect special assessment soon.

Questions to Ask Based on Minutes

If you see recurring issues:

  • Why hasn't this been resolved?
  • What's the plan to address it?
  • How much will it cost?
  • When will it be done?

If you see financial concerns:

  • What's causing the problem?
  • How will it be addressed?
  • Will assessments increase?
  • Is special assessment coming?

If you see governance problems:

  • Why did board members resign?
  • Why was management company changed?
  • Are there ongoing disputes?
  • Is the HOA functional?

Insurance and Liability Review

Insurance Coverage Analysis

Master policy (HOA's insurance):

  • Property coverage amount
  • Liability coverage amount
  • Deductible amounts
  • Coverage exclusions
  • Premium history

What should be covered:

  • Building structure
  • Common areas
  • Liability for common areas
  • Directors and officers (D&O)
  • Fidelity bond (protects against theft)

Seattle typical coverage:

  • Property: Replacement cost of building
  • Liability: $2-5 million
  • Deductible: $10,000-$25,000
  • D&O: $1-2 million

Red flags:

  • Inadequate coverage amounts
  • High deductibles (over $25,000)
  • Premium increases over 20% per year
  • Coverage gaps or exclusions
  • Claims history (multiple claims)

Your Insurance Needs (HO-6)

What you need to insure:

  • Interior improvements and upgrades
  • Personal property
  • Loss assessment coverage (for special assessments due to insurance claims)
  • Liability for your unit
  • Additional living expenses

Loss assessment coverage:

  • Covers your share of HOA deductible
  • Covers special assessments from insured losses
  • Typical coverage: $50,000-$100,000
  • Essential in high-deductible HOAs

Example scenario:

Building has fire. HOA's insurance deductible is $25,000. There are 50 units. Your share: $500. Your HO-6 loss assessment coverage pays this.

Litigation and Claims

What to check:

  • Pending lawsuits (disclosed in resale package)
  • Past lawsuits (check meeting minutes)
  • Insurance claims history
  • Construction defect claims

Common HOA lawsuits:

  • Construction defects
  • Water intrusion
  • Slip and fall
  • Discrimination
  • Contract disputes
  • Assessment collection

Red flags:

  • Multiple ongoing lawsuits
  • Construction defect litigation (expensive, long)
  • Pattern of lawsuits
  • Large settlements or judgments

Financial impact:

  • Legal fees (can be $50,000-$500,000+)
  • Settlements or judgments
  • Special assessments to cover costs
  • Insurance premium increases

Delinquency and Collection

Delinquency Rate Analysis

How to calculate:

  • (Total delinquent assessments / Total annual assessments) × 100

Benchmarks:

  • Under 5%: Healthy
  • 5-10%: Concerning
  • 10-15%: Problem
  • Over 15%: Crisis

Example:

Total annual assessments: $600,000 Delinquent assessments: $45,000 Delinquency rate: ($45,000 / $600,000) × 100 = 7.5%

Interpretation: 7.5% is concerning. HOA may have cash flow problems and may need to increase assessments to compensate.

Impact on You

Higher delinquency means:

  • Cash flow problems for HOA
  • Deferred maintenance likely
  • Assessment increases likely
  • Special assessments possible
  • Difficulty getting financing (lenders care about this)

Lender requirements:

  • Most lenders want under 15% delinquency
  • FHA requires under 15%
  • Some lenders want under 10%
  • High delinquency can kill your financing

Collection Practices

What to check:

  • Late fee policy
  • Collection procedures
  • Lien and foreclosure policy
  • Attorney involvement

Red flags:

  • Inconsistent enforcement
  • No collection policy
  • Large old delinquencies
  • Multiple units in foreclosure

Red Flags That Should Make You Walk Away

Critical Financial Red Flags

Immediate deal-breakers:

  • Reserves under 30% funded with major projects coming
  • Operating cash under 1 month expenses
  • Delinquency rate over 15%
  • Pending special assessment over $10,000 per unit
  • Multiple years of operating deficits
  • Unpaid bills or liens

Example - Walk away scenario:

HOA has:

  • $50,000 in reserves (should have $800,000 per study)
  • Roof replacement needed next year: $600,000
  • Delinquency rate: 18%
  • Operating deficit last 2 years
  • Pending lawsuit

Analysis: This HOA is in crisis. Massive special assessment coming, possibly $15,000+ per unit. Walk away.

Critical Maintenance Red Flags

Immediate deal-breakers:

  • Deferred major maintenance (roof, siding, foundation)
  • Safety issues unaddressed
  • Building code violations
  • Structural problems
  • Extensive water damage or mold

Example - Walk away scenario:

Meeting minutes show:

  • Roof leaks in multiple buildings for 2+ years
  • Temporary repairs only
  • Water damage in units
  • Mold complaints
  • No plan to fix

Analysis: Building has serious water intrusion problems. Expensive repairs needed. Potential health hazards. Walk away.

Critical Governance Red Flags

Immediate deal-breakers:

  • Board unable to function (no quorum, constant resignations)
  • Management company turnover (3+ in 5 years)
  • Multiple ongoing lawsuits
  • Owner revolt or recall efforts
  • Fraud or embezzlement

Example - Walk away scenario:

Documents show:

  • 4 management companies in 3 years
  • Board president resigned, citing "impossible situation"
  • Lawsuit against former board for mismanagement
  • Special meeting called to recall current board
  • Financial records incomplete

Analysis: HOA is dysfunctional. Governance crisis. Walk away.

Using Your Findings in Negotiations

Negotiation Strategies

For moderate issues:

  • Request price reduction
  • Request seller credit
  • Request seller pay special assessment
  • Request extended contingency for repairs

For significant issues:

  • Substantial price reduction ($10,000-$50,000+)
  • Seller pays pending special assessment
  • Seller provides reserve fund contribution
  • Seller addresses specific maintenance issues

Example negotiation:

Finding: Reserve study shows $200,000 shortfall for roof replacement in 2 years. Your share: $8,000.

Request: "Based on reserve study showing $8,000 special assessment likely in 2 years, we request $8,000 price reduction or credit at closing."

When to Walk Away vs Negotiate

Walk away if:

  • Multiple critical red flags
  • Financial crisis (reserves under 30%, high delinquency)
  • Major deferred maintenance
  • Dysfunctional governance
  • Your financing won't be approved

Negotiate if:

  • Single issue that can be addressed
  • Moderate financial concerns
  • Seller willing to compensate
  • You have cash reserves for potential assessments
  • You're comfortable with the risk

Documenting Your Findings

Create summary report:

  • List all issues found
  • Categorize by severity
  • Estimate financial impact
  • Recommend action

Example summary:

Critical Issues:

  1. Reserves 45% funded (should be 70%+)
  2. Roof replacement needed in 3 years: $450,000 ($9,000 per unit)
  3. Delinquency rate 12% (concerning)

Moderate Issues:

  1. Insurance premiums increased 25% last year
  2. Management company changed 2 years ago
  3. Elevator maintenance deferred

Financial Impact:

  • Likely special assessment: $9,000-$12,000 in next 3 years
  • Assessment increase likely: $50-$100/month
  • Total estimated cost: $15,000-$20,000

Recommendation: Request $15,000 price reduction or walk away.

Professional Review: When to Hire Help

Real Estate Attorney

When to hire:

  • Complex CC&Rs or bylaws
  • Pending litigation
  • Unusual restrictions
  • Governance concerns
  • Large purchase (over $500,000)

What they review:

  • Legal compliance of documents
  • Your rights and obligations
  • Litigation risk
  • Enforceability of rules
  • Contract terms

Cost: $300-$800 for document review

CPA or Financial Advisor

When to hire:

  • Complex financial statements
  • Large HOA (100+ units)
  • Financial concerns identified
  • Reserve study questions
  • High-value purchase

What they review:

  • Financial statement accuracy
  • Reserve fund adequacy
  • Budget reasonableness
  • Financial projections
  • Special assessment risk

Cost: $500-$1,500 for financial review

HOA Management Consultant

When to hire:

  • Governance concerns
  • Management questions
  • Operational issues
  • Large or complex HOA

What they review:

  • Management quality
  • Operational efficiency
  • Governance effectiveness
  • Best practices compliance

Cost: $500-$1,000 for consultation

Summary: Your Contingency Checklist

Days 1-2:

  • Receive and organize complete resale package
  • Verify all required documents included
  • Request missing documents
  • First pass review for obvious red flags

Days 3-5:

  • Analyze financial statements (balance sheet, income statement)
  • Calculate key ratios (delinquency, reserves, cash flow)
  • Review budget vs actual
  • Identify financial concerns

Days 6-7:

  • Review reserve study thoroughly
  • Calculate percent funded
  • Identify upcoming major expenses
  • Estimate special assessment risk

Days 8-9:

  • Read meeting minutes (12-24 months)
  • Review insurance coverage
  • Check litigation disclosure
  • Assess governance and management

Day 10:

  • Compile all findings
  • Categorize issues by severity
  • Estimate financial impact
  • Decide: proceed, negotiate, or walk away
  • Submit contingency response

Critical red flags (walk away):

  • Reserves under 30% funded with major projects coming
  • Delinquency over 15%
  • Operating cash under 1 month expenses
  • Major deferred maintenance
  • Dysfunctional governance
  • Multiple ongoing lawsuits

Moderate concerns (negotiate):

  • Reserves 50-70% funded
  • Delinquency 5-15%
  • Pending special assessment
  • Management turnover
  • Insurance premium increases

Disclaimer: This article provides general information about HOA resale document review for educational purposes. It is not legal, financial, or investment advice. Always consult with qualified professionals (real estate attorney, CPA, financial advisor) for specific guidance on HOA document review and purchase decisions. HOA laws and requirements vary by state and jurisdiction.

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