What Is An HOA Initiation Fee? Is Charging Homeowners Legal?

Is your homeowners association charging you an initiation fee? Are you wondering if the association even has the right to impose such a fee against you? Here is everything you need to know about an HOA initiation fee.

Understanding the Legalities of an HOA Initiation Fee

Anyone would feel apprehensive about paying fees they don’t understand, especially those who have never lived within an HOA community before. You may wonder whether fees like this are normal or even legal.

What purpose do these fees serve anyway? Where do they go and what does the association use them for? Is there a way you can decline to pay the fee? But, before you can fully understand the answers to these questions, you must first learn what an HOA initiation fee even is.

An HOA initiation fee is a fixed amount imposed when a property in an HOA community is transferred from one owner to another. You may ask what the difference is between the initiation fee vs transfer fee — there is none.

An initiation fee is the same as a transfer fee, and the two terms are used interchangeably. The HOA initiation fee can also go by other names, such as an HOA capital contribution, a buy-in fee, a transfer fee, or a contribution to working capital.

Differentiating Between an HOA Initiation Fee and Other HOA Fees

Living in an HOA community comes with obligations, and one of those is to pay fees or dues. These are not the same as initiation fees.

Whereas initiation fees are paid upon the transfer of a property, HOA dues are paid by homeowners regularly to cover the association’s operating expenses. Initiation fees also differ from special assessments in that the latter is charged to pay for expenses that the operating and reserve funds can’t cover.

Associations can also levy late fees or fines against homeowners who violate the HOA’s covenants or rules. For instance, if a homeowner fails to pay their monthly dues on time, the HOA can impose a late fee. Of course, the association’s governing documents must outline the HOA’s authority to do so.

It is important to know the difference between the many fees an HOA may charge you. This way, you can accurately assess the situation and avoid any misunderstandings.

Are HOA Initiation Fees Legal?

HOA initiation fees are legal and usually mandatory. Furthermore, although a select few don’t charge them, initiation or transfer fees are also very common among HOA communities.

There is a catch, though. The association’s governing documents must explicitly declare any mandatory fees, initiation fees included. The stipulations in these documents vary from association to association. Therefore, HOAs may have different initiation fee amounts. Having said that, the amount typically ranges from $100 to an entire year’s worth of assessment fees.

Keep in mind that state laws can also play a part in this. Some states place a limit on how much associations can charge, while other states have no such cap.

The Purpose of a Homeowners Association Initiation Fee

Homeowners associations charge fees for a reason. In this case, the initiation fee usually goes straight to the association’s reserve funds. Young communities with newly constructed homes charge an initiation fee to start the association’s reserve fund. This is primarily because community associations require a minimum amount in the reserves.

For established communities, though, the money typically ends up in the reserve fund, too. A high amount in the reserves means the association can lower assessment fees.

Who Pays the HOA Initiation Fee? Does the Fee Recur?

More often than not, HOA initiation fees are one-time only fees that the first owner of the property shoulders, but not all associations have the same provisions.

Some associations may include in their governing documents the ability to charge the initiation fee upon each transfer of the property. In that case, every time the property transfers from one owner to another, the association charges the initiation fee to the new owner. While not a particularly attractive deal, associations that do this find that it consistently brings in money that they can use.

It is worth noting, though, that not all associations can adopt such a practice. Some states have laws regulating how many times an association can charge initiation fees.

For instance, in North Carolina, community associations formed after July 1, 2010, may not impose such a fee every time a property transfers ownership. Transfer fees are limited to a one-time payment on the initial transfer of the property from the developer to the first owner.

Can Homeowners Refuse to Pay HOA Initiation Fees?

It is normal to feel alarmed at the very mention of another association fee you must pay. You may begin to wonder if there is a way you can skip paying the initiation fee.

Unfortunately, homeowners generally have no other option. If state laws and the HOA’s governing documents allow it, then as a homeowner, you are obligated to pay it.

You may ask the seller of the property to cover the cost of the transfer fee upon closing. Though, it will not come as a surprise if the seller refuses to do so. As its name suggests, the initiation fee is meant as an entrance fee of sorts. Therefore, it only makes sense for the new owner to shoulder the fee.

The Price of HOA Living

If you have no experience living in an HOA community, you will understandably find yourself in unfamiliar territory. Although association living does come with a price, it also offers many benefits. For instance, HOAs can help boost curb appeal and, in turn, enhance property values. Plus, you have access to the association’s many amenities and services. All this and more certainly makes it worth it to pay an HOA initiation fee.

Managing homeowners associations can be a tough job. Make it easier with the help of a professional HOA management company like Clark Simson Miller. To learn about our services, call us today at 865.315.7505 or email us at help@csmhoa.com.

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