Condo questionnaire came back with 50% delinquency and there is pending litigation (HOA fees, lender)

[chet everett]

Originally Posted by guitarguy1685

I don't want to hijack this thread but could someone explain what is going on here? I'm asking because I'm looking to buy a condo and I haven't heard of this situation.

So half of the units are behind in mortgage payments or HOA fees? or both? How does that affect you? I guess that means the HOA can't provide services if people are not paying up?

So what happens to the other half who are not delinquent and already own the condo?

The basics are that any condo (or townhouse, or even a subdivision with an HOA) has to provide info on the financials of the HOA. Some lenders have refused to do a deal if the reserves do not meet their guidelines. If the data supplied by the HOA shows that ANY homeowners are behind in their dues this too can (and should) be a sign that all is not well. Sometimes their is some kind of dispute with the builder and that is why some unit owners are withholding their Assements -- maybe the promised roof top deck was never finished, maybe there is some more major defect. If the HOA has filed suit against the developer this would be the kind of things that the HOA's board needs to have money in the bank to pay the attorney or the developer will likely just "out wait" the suit... Even small condos need maintainenace for the common areas -- if electric bills go unpaid and the lights are not on at night you get safety issues. Worst case liens can be filed by unpaid contractors and such -- no one can sell until those liens are cleared, and that can get very expensive very fast...

The issue of other units being behind on their mortgage is a separate problem -- the lender will not be able to have a loan that meets Fannie / Freddie standards and likely will not make that loan as it will not be sellable on the secondary market...

In a nut shell once you buy a condo (or other HOA covered property...) you end up having worry about the finances of your neighbors as it impacts your investment. If you are shopping for such a property it is important that your BUYER'S agent is aware of these pitfalls and writes your offer in such a way to ensure that all such scenarios will leave you able to safely get your earnest money returned for things outside of your control...

[Looking for change-123]

Originally Posted by Vlajos

I think you may have to take a pass. At least read the questionnaire. Sorry.

Agreed, and what if you become the only unit current subsidizing the other 5's HOA's?

[emathias]

It's absolutely cause for concern and/or further investigation.

Find out what the litigation is about. Is it between owners? Is it between the association and a neighbor? The City? A vendor? Who is the plaintiff, the association or and owner or a third party?

How delinquent are the owners? 1 month? 3 months? More? Do they just have a habit of paying in clumps?

We had a situation in my association where the manager was being investigated for embezzlement. During the bulk of the investigation until he was removed, which lasted nearly 6 months for a variety of reasons, I intentionally withheld my payments but told the board why. And it was a good thing I did, as those payments were among the only money we were able to recover. So sometimes there are legitimate reasons for owners to be delinquent.

Now it is riskier, and if the situation wasn't disclosed prior to negotiation, it fundamentally changes the value of the property and may become something for negotiating a further price reduction with.

[Aleking]

Walk. One of the main reasons why I chose my building (30 units) was the sterngth of the association. No delinquency, strong reserves, reasonable assessment, etc.

[knitgirl]

I work in the mortgage industry and I'm shocked that your lender approved the condo. I totally agree with everyone else - run!! Even if you do lose your earnest money. That building is not a good risk. I'm interested in more details, could you pm me?

[cully]

Definitely cause for concern. Picture yourself living there. What was not paid for? How are amenities kept on/water kept on/whatever as the condo association gets deeper and deeper in the hole. How are you going to resell? If dues are not paid how will the association ever catch up? What happens when new siding or roofing is needed. How can one expect any special assessment to be paid. How are the paying residents supporting the shortfall of the non-paying residents. Must be a lot of animosity.

On so many levels, can't be a happy situation. Once you get in and realize this and want to get out...how could you sell?

[BRU67]

Originally Posted by guitarguy1685

I don't want to hijack this thread but could someone explain what is going on here? I'm asking because I'm looking to buy a condo and I haven't heard of this situation.

So half of the units are behind in mortgage payments or HOA fees? or both? How does that affect you? I guess that means the HOA can't provide services if people are not paying up?

So what happens to the other half who are not delinquent and already own the condo?

Let's see, an investor buys up the delinquent units and decides to rent them to Section 8 voucher holders, or less than savory tenants. You cannot rent your unit because the bylaws say only 50% can be rented, and the investor is already renting his. You cannot sell your unit because a potential buyer cannot get a loan to buy the unit from you because the owner occupied percentage is too low. The occupants of the deliquent units don't pay their rent, and there's no one paying the association dues for several months except you, so there's no money in reserve to fix the roof that starts leaking next March (and guess who pays to fix it?).

We could go on but why? Don't buy a condo unit unless it's in a building that has no litigation, no deliquent units, and a high owner occupancy rate. Better yet, buy a small house. Then you won't have to worry about this stuff.

[chicagoRE]

I have been a realtor in Chicago for 10 years. I too am shocked this was approved by your lender. What does your agent have to say about this? Your attorney? Walk away.

[IC_deLight]

Don't confuse HOAs with condo corporations. Two very different ownership schemes.

As far as "delinquencies" are concerned, you need to be aware of the business practices of many of the "professional" management companies. They are "professional" alright - professional at extorting money from homeowners. These management companies also have various schemes to divert money paid to the condo corporation to themselves to leave owners "in arrears" in order to pyramid up more fees for the management companies.

Whether the delinquencies are "legitimate" or illegitimate you would eventually become the one losing. Are utilities, etc. entangled with the assessments? If so then you could easily end up in a situation where you are paying assessments under threat of foreclosure to the condo corporation which is not paying the utilities. You end up having to pay for a place that is unmarketable and uninhabitable. Why take the risk? If you can avoid condominium or other involuntary membership-burdened property, avoid it.

[chet everett]

Technically there are various classes of "shared ownership" that may include condominiums, coops, zero lot line developments and all other goofy things. It is not completely accurate to lump them all in together, and depending on the state rules under which these were sold there may not be a need for an HOA but if there is one or any other kind of structure it does complicate things enough that really ought to know what you are getting into...