Does HOA Come Out of Escrow at Closing?

When purchasing a home within a community governed by a homeowners association (HOA), understanding how various HOA-related costs are handled at closing is important. The process involves multiple fees and specific procedures. Escrow plays a key role in managing these financial obligations during a real estate transaction, ensuring a smooth closing. This article details the different types of HOA costs and how they are integrated into the closing process.

Understanding Escrow in Home Transactions

Escrow plays a central role in real estate transactions, acting as a neutral third party that holds funds and documents until all conditions of the purchase agreement are met. The escrow agent ensures that both the buyer and seller fulfill their obligations before the property’s title is transferred. This safeguards all parties by ensuring money and property change hands simultaneously and correctly. Escrow manages all financial aspects of the transaction, including various closing costs, disbursing them appropriately before the sale is finalized.

Key HOA-Related Costs at Closing

Several types of homeowners association-related costs arise during a home sale. Regular HOA dues are prorated, with the seller paying for their portion of the month and the buyer responsible for the remainder. HOA transfer fees, sometimes called new owner fees or buy-in fees, are one-time charges by the HOA to cover administrative costs of updating records and transferring ownership. These fees range from $100 to $500.

HOA document fees, also known as disclosure fees, cover the cost of providing necessary association documents, such as covenants, conditions, and restrictions (CC&Rs), bylaws, and financial statements, to the buyer. These fees range from $100 to $1,000, with an average of $250. Capital contribution fees are one-time payments made by the buyer to the HOA’s reserve fund, used for major repairs or improvements to common areas. These range from a few hundred dollars to over $1,000, sometimes calculated as two to three times the regular HOA dues.

Special assessments are charges levied by the HOA for unexpected expenses or large projects not covered by regular dues. Who pays a special assessment at closing depends on when it was authorized, with sellers typically responsible for assessments levied before closing. A Statement of Account or Estoppel Certificate fee is charged by the HOA for providing an official document detailing the financial status of the property, including any outstanding fees or dues owed. These fees range from $100 to $250.

How HOA Costs are Managed Through Escrow

Many HOA-related costs are managed and paid through the escrow account at closing. The escrow agent receives a detailed statement from the homeowners association, often called an estoppel certificate, which outlines all outstanding and upcoming fees for the property. This document ensures both buyer and seller are aware of the financial obligations tied to the property.

These costs are itemized on the Closing Disclosure, a standardized form that provides an overview of all final loan details and closing costs. The Closing Disclosure clearly indicates who is responsible for paying each fee, whether the buyer, seller, or a shared expense. For regular HOA dues, the escrow agent handles prorations, ensuring the seller pays for their portion of the month up to the closing date and the buyer pays for their share from the closing date onward.

Funds from the buyer’s down payment, loan proceeds, and the seller’s proceeds are transferred to the escrow account. The escrow agent then uses these funds to disburse the various HOA-related payments directly to the homeowners association, title company, or other relevant parties. This centralized handling streamlines the process, ensuring all necessary payments are made before the property title transfers to the new owner, preventing any liens or undisclosed debts from transferring with the property.

Ongoing HOA Payments After Closing

While escrow manages initial HOA-related costs associated with the property transfer, regular HOA dues and any future special assessments are the responsibility of the new homeowner after the closing date. These ongoing payments are made directly to the homeowners association, typically monthly, quarterly, or annually. These dues cover the maintenance of common areas, amenities, and the community’s financial health. Homeowners should budget for these payments separately, as they are not included in the mortgage escrow account that collects funds for property taxes and homeowners insurance.