By Jeff Lender
Homeowner’s Associations (HOAs) are organizations empowered to enforce certain rules for the residents of housing developments, subdivisions, and other types of communities. An HOA might create and enforce rules related to the architectural style of houses built in that community, paint colors, structures that can be built on the property, how many pets can be owned, and more. In fact, an HOA can create rules that restrict the use of a property in nearly any way that does not violate homeowners’ rights or violate state and federal laws, as long as those rules were created in accordance with proper procedures and are enforceable in a consistent manner.
The rules made by HOAs are a type of restrictive covenant, and they can come into play when purchasing title insurance. Because more than 75 million Americans live in an HOA community, and 66% of new construction homes are built in HOA communities, these types of restrictive covenants are likely to affect you as a homeowner. Here’s more about restrictive covenants and HOAs, and how they relate to title insurance:
A legally binding clause that prevents, prohibits, or limits the actions of a person or entity named in a contract is known as a restrictive covenant. While they can be wide-ranging, restrictive covenants in real estate are generally intended to limit the activities of individual property owners with the intention of protecting the property values of an entire community.
As we mentioned, this could include the style and color of a home, or the types of structures that can be built on the property. A restrictive covenant might also prevent use of the property for business purposes, limit the number of vehicles that can be kept there, and could restrict any number of other activities. If you move into an HOA community and agree to these restrictions, they will be legally binding. Failure to comply with HOA rules can result in heavy fines, revocation of member privileges, or even loss of title to the property.
While an owner’s title insurance policy can protect against some restrictive covenants, this protection may not apply in the case of homeowner’s associations. A standard title insurance policy will protect against financial losses related to undiscovered restrictive covenants attached to a title, but only if they existed prior to your purchase and were unknown at the time of the sale. Any actions you take as a homeowner that violate HOA rules will not be covered.
For example, if you decide to paint your home neon green and you receive a fine from your HOA, the costs associated with repainting will not be covered, nor will your fines. Because restrictive covenants in HOA contracts are usually clearly outlined and known at the time of sale, title insurance won’t be able to provide any help. In general, most title insurance policies will specifically exclude coverage for HOA restrictions of all kinds. The restrictive covenant coverage provided by title insurance generally only applies to properties that are not part of an HOA.
Although coverage for restrictive covenants is limited, title insurance can still provide a range of benefits to homeowners who live in HOA communities. If an error was made in the public records for your home, for example, your owner’s title policy would cover the expenses related to resolving it. Likewise, if another party would try to claim ownership of your property, your title policy could cover some or all of the expenses you incur fighting that competing claim in court, including the cost of hiring a lawyer.
In this regard, owner’s title insurance provides essential protection for every homeowner, whether or not they live in an HOA community. Your investment in real estate is significant, and it’s too important to risk losing it because of a title defect. If you have questions about the type of protections provided by title insurance in HOA communities, the team at World Wide Land Transfer will be happy to assist you. Get in touch with us if you are looking for the best title insurance company in NY or you need coverage anywhere else in America.
World Wide Land Transfer is a service-oriented PA title company with offices in Philadelphia, New York, and Washington, D.C. With a record of going above and beyond, we are trusted to close everything from complex commercial transactions to residential refinance and purchase transactions.
