Loans and Financing

 

Condos, Townhomes and Other Real Estate Owners Associations

We noted in our section on Legal Issues that the evaluation process for any real estate that you’re buying requires that you look beyond the physical structure or the land itself to the more abstract legal characteristics of the property you’re buying. When you’re buying a condominium or townhome, or any even a single family home or piece of land that is governed by a home owner’s association, you need to be a least one degree more cautious. When you buy this type of property, you’re not only purchasing a piece of real estate. You’re buying into a corporate entity that has its own governing structure, the ability to establish new rules and regulations that can define how you can use your property, and the ability to mismanage the finances of the corporation in ways that could bankrupt you.

The Financial Status of the Association

If the association needs  to replace the roofing or resurface the parking lots, or build a new road or water system, they will need money to cover the costs. If they don’t have the money in their reserve accounts,, they will either have to assess every owner for a portion of the costs or they will have to borrow the money and raise association fees for owners to  cover the loan payments. If they are going to assess you $1,000 in excess of  normal association fees, you need to take this into account. And if they raise  association fees above the norm, you may have a difficult time selling when you  want to. When you buy a town home or condo, you are essentially becoming a  shareholder in a corporation and assuming part of the assets and liabilities of  that corporation. You need to assure yourself that the corporation is solvent before you close on your property.

The Association’s Management Style

Larger condo complexes in our  area typically have professional management. They will have detailed budgets  and projections for future repairs and maintenance. Smaller associations may be  managed by one of the owners in the complex, the landscaping may be taken care  of by the owners, and the owners may routinely deal with major repairs by  requiring everyone to kick in $500 to cover costs. You need to know what the  management style of the association is and make sure that you’re comfortable  with it.

Maintenance of the Complex

The unit that you are buying may be  immaculate, but if the complex as a whole is poorly cared for you may have a  very difficult time selling. In most cases, if you see that the complex has not  been well maintained, you will find that the financial status of the  association is less than ideal.

Rules and Regulations

In addition to recorded covenants, most town home or condominium  associations have unrecorded rules and regulations that you will have to live  with. You need to review these and make sure you are comfortable with them. It  is also a good idea to review the minutes of recent association meetings to  familiarize yourself with the issues that are of concern to current owners in  the complex.

Lending Requirements

Make sure that the complex meets the criteria for major  lenders. If you are getting an FHA loan, your lender will verify that the  complex is FHA approved. However, if you are paying cash or getting a  conventional loan, you may only discover that the complex is not FHA approved  when you are trying to sell it and find out that an FHA buyer  can’t buy your condo because the complex doesn’t meet their  lending requirements. If the complex is not eligible for FHA or conventional  loans with low down payment limits, you may have purchased a condo with a  limited resale market.