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So we just got the Reserve Study -- a 94-page behemoth that the HOA told me (through the listing agent) has all the information (and more) that I could ever want, but they also said that HOA management "cannot interpret any of the information provided." But how do I interpret it?
I asked my agent if she would be able to help us interpret it, and she agreed to go over the document with us but with a disclaimer: "I wouldn't have the HOA knowledge since it's something sellers and buyers are supposed to review and research as your [sic] doing. I'm happy to assist...just know I'm not a lawyer and able [sic] to give you legal advice or HOA analysis only real estate advice [sic].
So to whom can I turn to interpret this information and get a better understanding of what it means for the future (assessments, etc.)?
The information in the RS seems to look a bit less bleak than the initial info the sent, but to my untrained eye I cannot be sure.
The loan is actually pretty decent. It's a 30 year fixed at 4.25% with .25 points. Despite the low owner occupancy rate and the very recent litigation, our financing is pretty much secured.
I don't understand why. They have actually said despite the recent litigation and low owner occupancy? Is this through a bank you said...walls, doors and all?
Or is this based on an ideal situation and they'll figure it out later, which is not unusual. Later on, they see if it sticks.
We received the Reserve Study from the HOA today -- a 94-page behemoth -- and they've informed me that all the information (and more) that I want about the HOAs reserves can be found in there, but that THEY CANNOT INTERPRET the information.
I asked my agent if she would be able to help us understand the numbers and use them to predict what future special assessments may be in store, and she said she would go over it with us but disclaimed that she is not an expert in HOA policies and could not provide us with legal advice on the matter.
So the question is, to whom can we turn to help us analyze these numbers? Surely they can't expect every prospective homebuyer to have the ability to effectively analyze these numbers....can they?
I don't understand why. They have actually said despite the recent litigation and low owner occupancy? Is this through a bank you said...walls, doors and all?
Or is this based on an ideal situation and they'll figure it out later, which is not unusual. Later on, they see if it sticks.
The name of the bank is two words: first letter/first word W; first letter/second word F. Rhymes with Bells Embargo.
One would hope that they wouldn't order an appraisal of the property until the financing was all but secured, right? They have. Not many people I know that would be happy about shelling out 450 bucks before they even knew if the property could be financed.
I wonder where you get your information? FHA, Fannie Mae, VA, and Freddie all have a review of the condo association's health. Pending litigation is one reason to deny financing, as are high delinquencies, or inadequate reserves. The review may be waived when the buyer has 20% or more down (on a conventional loan). FHA sees a high number of non occupied units a as a sign a neighborhood is no longer desirable. Anyone buying a condo should ask their lender about the review requirements And even ask to see the required questionnaires. The OP's dilemma may be moot, as their lender may not even go along with the property under contract.
You're right. Banks do have some basic red flags--pending litigation, high number of non-owner occupied units. They will still loan, but you have to have more money down, more skin in the game.
But banks will do conventional loans on homes in HOAs that have no reserves whatsoeover. Our HOA has been pulling out a financial hole left by a previous board and has no reserves other than a bit in the bank in case of a disaster. 10% down loans have been going through for years, no problem.
As far as I'm aware, banks don't peruse 60 page reserve studies, or check into the percentage of delinquencies, or figure out how close an HOA is to bankruptcy... Just because a bank will loan you money for a condo, does not mean the association is in a strong financial position.
If you buy into a community that heads south and your home is worth half of what you paid for it in two years, you're on the hook for that unless you decide to file bankruptcy or let it go into foreclosure.
Not only will this have a chilling affect on your credit rating, but my understanding is that in a foreclosure, the bank can still go after you for the difference between what they sold the house for and the mortgage left on it. Is this true?
The name of the bank is two words: first letter/first word W; first letter/second word F. Rhymes with Bells Embargo.
One would hope that they wouldn't order an appraisal of the property until the financing was all but secured, right? They have. Not many people I know that would be happy about shelling out 450 bucks before they even knew if the property could be financed.
A lot of lenders do wait till close to the end of the loan process to do the appraisal. Also a lot of times the loan package will go from one underwriter to a higher underwriter right at the supposed end of the process and then be sent back to the loan broker and buyer for more info .... on and on. I don't know why. Maybe some places are overwhelmed and quickly hiring people not completely trained.
We received the Reserve Study from the HOA today -- a 94-page behemoth -- and they've informed me that all the information (and more) that I want about the HOAs reserves can be found in there, but that THEY CANNOT INTERPRET the information.
I asked my agent if she would be able to help us understand the numbers and use them to predict what future special assessments may be in store, and she said she would go over it with us but disclaimed that she is not an expert in HOA policies and could not provide us with legal advice on the matter.
So the question is, to whom can we turn to help us analyze these numbers? Surely they can't expect every prospective homebuyer to have the ability to effectively analyze these numbers....can they?
thanks,
greg
I don't know that the Reserve Study would involve HOA policies.
Are you talking about the Purchaser's Disclosure Packet? Or is the Reserve Study 94 pages? Our Reserve Studies typically covered the structures and what was in them and the grounds, etc. But not the policies, bylaws and declarations. That was additional.
There should be an executive summary, one that maps out expected expenditures for each of the years covered by the study and the expected deposit into the reserves net expenditures. There should be a page where the reserve study preparer indicated the % funded and the odds of a special assessment. Expenditures may not track exactly what the study proposes because some things do not wear out on schedule.
You need to ask about HOA dues in arrears. What % of the dues do they represent, median age and what efforts are the HOA making to collect them. 60 units is a large HOA.
Find out if there are restrictions on the number of rentals and under what circumstances can an owner rent their unit. Let me give you contrasting situations: (1) owner(s) need nursing home care and are not competent to sign a sales contract. HOA gives family permission to rent the unit until it can be legally sold. (2) owner's employer dispatches him/her abroad for a couple years. Employer engages an executive rental firm to manage the unit until the employee's return. (3) Unit purchased by an investor who has never occupied the unit and rents it to whomever they please. The most frequent issue with renters is abiding by HOA rules and enforcing 'good neighbor' conduct but if truth be told some owners aren't good neighbors either. Neighborly behavior issues can often be found in letters to the Board.
Being on an HOA Board is a thankless job. Keep in mind the fact that they are blokes like yourself who usually try to do their best. Stinkers are ones who are control freaks or who don't want to invest in the common asset.
Even when you buy a single family dwelling expensive maintenance issues arise unexpectedly. You need to create your own savings bucket either way so that the unanticipated doesn't become a nightmare.
Find out if there are restrictions on the number of rentals and under what circumstances can an owner rent their unit. Let me give you contrasting situations: (1) owner(s) need nursing home care and are not competent to sign a sales contract. HOA gives family permission to rent the unit until it can be legally sold. (2) owner's employer dispatches him/her abroad for a couple years. Employer engages an executive rental firm to manage the unit until the employee's return. (3) Unit purchased by an investor who has never occupied the unit and rents it to whomever they please. The most frequent issue with renters is abiding by HOA rules and enforcing 'good neighbor' conduct but if truth be told some owners aren't good neighbors either. Neighborly behavior issues can often be found in letters to the Board.
I think there might be fewer problems with renters in condos than in single family neighborhoods as the HOA does all the landscaping and outside maintenance which is often a problem in single family neighborhoods--the outside gets run down in a hurry as renters often have little vested interest in keeping the place nice.
That said, we have more problems with renters than we do with homeowners. They open daycares, let their friends park for weeks in visitors' spots, behave inappropriately in public, let their kids run wild through the neighborhood, don't pick up after their dogs, have drunken brawls at the pool, and generally behave like this is a college apartment complex rather than a neighborhood.
If a homeowner behaves this way, other homeowners talk with them and there is social pressure to conform. Renters rarely care. It's I'm only here for a year or two. Their attitude seems to be that the HOA is a bunch of nosy busybodies.
So you send a letter to the landlord who, supposedly, talks with the tenants. But really, as long as they pay the rent on time, what do the landlords care?
Also, when condo prices dropped during the recent economic downturn, rentals were the first ones to quit paying dues. Perhaps they were between tenants. Several went into foreclosure. Some just quit paying dues even though they were receiving rent. It was fiasco several times as, according to our bylaws, those in arrears can't use the amenities and tenants tried and were told no. Strangely enough, one landlord was irate that his tenant found out he wasn't paying the dues. Go figure.
Dues are an easy bill not to pay. Quite paying your electric bill and you're sitting in the dark with a fee to pay to get it turned on again. Quite paying dues and you get a couple letters from the HOA. Big whoop.
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