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Hi there. I recently entered into escrow to buy a condo. Throughout the process, I kept asking what the HOA situation was, and the seller kept saying he didn't know and that all will be revealed in escrow when the HOA docs need to be disclosed. After a week of submitting for the loan and jumping through the usual hoops of escrow and closing, the HOA docs came through and it looks terrible. Currently, the building has 10 units, the HOA is $270 a month and the reserves are at $10K. The 2014 budget is cash flow negative by $2,500.
When the bank reviews this, will it even approve a loan? And what would you do with this HOA situation? Anyone have a similar situation or have been in one?
Need some advice and thoughts to ground myself and see where people would stand with this. Thanks so much!
Run away. This is a poorly run HOA association. Nothing good will come from this situation.
The HOA will have to increase monthly common charges on each unit or apply a special assessment to each unit just to increase reserves if nothing else. You don't need to buy into this mess. You have no idea what the future expenses to you will be. If you buy there, you will be paying them.
I'd be highly concerned especially with a $240/HOA fee. Unless utilities were included, if I knew that was the monthly fee before hand I doubt I would have put an offer in.
My agent had an HOA checklist that had to be completed by the seller, which I received before the inspection period even ended. So I knew way before close what the financial situation was. I suppose I was fortunate that a) my agent had such a thing and b) the HOA was organized enough to where I had no issues getting all the docs on the checklist.
In my area those numbers would not signal a bad or risky purchase. Even condos with healthy reserves may occasionally have to do a special assessment for non-reserve, unexpected expenses. All other things being equal, it's better to purchase in a complex with lots of money in the bank but lack of cash doesn't automatically mean it's a bad deal. Your bigger problem is going to be loan approval. Bank's are very concerned with condo budgets, amount of delinquent owners, percentage of owner-occupants, etc.
The lender most certainly must vet the condo and make sure it meets certain condo guidelines. Delinquency and adequate budget reserves are two key items.
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