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More SWFL Vocabulary: CDD & HOA

Important Information for Home Buyers

Those starting to search for a new home in Florida may not be familiar with the concept and/or specifics of Homeowners' Associations (HOAs) or Community Development Districts (CDDs). Both HOAs and CDDs are common in Florida, however, so any serious potential buyer would be wise to understand how each may affect the home you choose to purchase, both in terms of the annual costs and the services and restrictions they include.

Depending on the neighborhood you can have one or the other...or both. If you have just one or the other, they are going to cover pretty much the same function, such as maintenance of the common grounds and amenities. However, a HOA also has a policing/monitoring role that ensures that the neighbors are not voilating any of the restrictions. In the case where you have both, which will most likely be in much larger communities, the local HOA will cover a certain portion of the immediate common grounds & amenities where the CDD might over the bigger items like the pools, nature trails, main club house, etc.

Community Development District (CDD) - This is a special purpose government entity that provides valuable community infrastructure (roads, utilites, amenities) and allows a developer to finance those costs with a CDD via tax-free municipal bonds. The bonds pay for not only roads and utilities, but also amenities such as clubhouses, pools, tennis courts and golf courses, etc.

A CDD fee is a payment structured by the developer and the County Commissioners prior to the development of the land that is designed to pay for the infrastructure and/or maintenance of the community. Instead of the developer using its own funds to pay for roads, utilities, amenities, etc. a tax-free municipal bond is used to pay for that. In other words, it is a type of loan/mortgage to the developer. Since this is essentially a loan, the CDD fee is the repayment of that loan.

Additionally, the CDD fee can be more than the just the repayment of the bond. It can be two parts:

  • Part 1 - Capital Bond Assessment 
  • Part 2 - Operations & Maintenance Asssessment.

Part 1: The Capital Bond Assessment is the repayment portion of the loan. It is usually a range of 10-30 year loan depending on the term of the bond. It is possible that a new bond can be taken out or the existing one refinanced. For example, if the community as a whole decides to put in a new pool, sports field, etc., a new bond may be issued, with approval. However, for this to happen the neighborhood would be involed in the voting and hearing of the decision-making process.

Part 2: Operations & Maintenance Assessment is not related to the repayment of the bond and is ongoing to the life of the community. This is similar to what the HOA fees cover for smaller neighborhoods. These assessments are often used to finance common ammenities such as pools, parks, sports fields, tennis courts, landscapting, etc. This is not a fixed cost and can rise according to price fluxuations or additions of new amenities that need to be maintained.

Can a CDD Change? - The Capital Bond Assessment and the Operations & Maintenance can be updated according to price or budget increase. When it does happen, each homeowner should receive a notice in the mail and if it a budget related issue where a vote/hearing will be held, that information should be included so that proper participation can take place.

Is a CDD a tax? A CDD fee is not a tax. Technically, it is an "assessment". Although it is included in your property tax bill, it is technically not a property tax. The reason it is included in your tax bill is that the tax collector may be contracted out to collect it for the CDD (Community Development District). In a sense, it is a budgeted community fee, like a HOA, but now with a new name.

Homeowners' Associations (HOA) - A HOA is an organization created by a real estate developer for the purpose of controlling the appearance and managing any common-area assets during the marketing, managing, and selling of homes and sites in a residential subdivision. Once 90% of the units in the community have been sold and closed, Florida law requires control of the HOA to be turned over to the homeowners, which is called turnover.

At turnover of the HOA, a group of people is elected by the residents to make up the board directing the homeowners association. The main duties are to:

  • Represent the best interests of the residents of the community, especially in the capacity of protecting home values through the implementation and enforcement of rules, known as covenants and restrictions and 
  • To assess and collect homeowners’ fees to help pay for the upkeep of common areas of the community as well as any other areas provided for in the covenants and deed recordings.

Common Rules and Regulations - Another aspect of communities with homeowners’ associations is that most involve rules and regulations, or covenants and restrictions (C and Rs) also referred to as covenants, conditions, and restrictions (C, C and Rs). Be sure to ask for a copy before you sign any purchase agreement, and make sure that the agreement is contingent on your understanding and approval of the covenants and restrictions and rules and regulations.

Some common rules and regulations that may be included in the documents are rules regarding:

  • Pets - there may restrictions or limits on the number of pets, breeds, size.
  • Parking - overnight or long-term street parking might not be allowed.
  • Changes to the exterior of your home - you may need approval before adding a screened-in patio, adding a pool, changing paint color.
  • Fences - you may be need to use only certain fence materials, height, or fences may not be allowed.

Don't fear the HOA - It can sound annoying to have to pay these fees and abide by these restrictions, especially if you are coming from a community that doesn’t have any fees or restrictions. But all these fees and rules, as inconvenient as they may sometimes seem, do serve the important purpose of protecting your home values. If you are going make a significant investment in a new home in Florida, you want to know that someone is looking out for you and your investment.

Most real estate experts believe that communities governed by homeowners’ associations have the best track record of preserving and increasing home values.

If you have any further questions about HOAs, CDDs, or Naples residential real estate, please feel free to contact me. I'm happy to help!

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