Beware of HOA's and condo's... - Posted by SteveA

Real Estate Investing Real Estate Law
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Posted by Killer Joe on April 04, 2005 at 12:58:06:

CA,

In a SFH the blame game has an obvious outcome. In buildings where common walls are shared, it’s not so easy to point a finger in any direction and locate the culprit at fault. So there has to be some guide lines.

You, as a condo owner need to assume responsibility for the space inside your 4 walls. Same with your neighbor. However the space in between your wall, and your neighbors, a ‘no mans land’, if you will, is subject to a different set of rules. Niether of you can claim that territory as your rightful property, so niether could you be held legaly responsible for it. (A caveat here, if you take a sledge hammer and knock a hole through the wall, and take out your neighbors picture of Elvis hanging on their wall, you’re liable for the whole ball of wax.)

The basic building structure, foundations, exterior walls, roofs, hallways, etc, is common area to all, and belongs to no one. So in steps the HOA to take up the slack. Generally, when the building is either first sold as units, or converted from apts, a set of bylaws is established giving the HOA its charter and its obligations. These obligations usually include the responsibilites you mentioned, and then some.

Now can the HOA come back on you to defray costs associated with these same maladies? Yes they can. Can you be held responsible? Yes you can. The legal system can dole out some very strange rulings that sometimes defy logic.

So in answer to your question…“Can we assume HOA is primarily & legally responsible to (for) termite infestation not seller or buyer? Would it be the same situation for mold, pests etc.?”…we can say ‘yes’. Now, will that gaurantee a predictable outcome? Depends on how loaded the dice are.

KJ

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Beware of HOA’s and condo’s… - Posted by SteveA

Posted by SteveA on April 01, 2005 at 16:29:59:

I bought a condo in Nov. '04 for $130K. ARV is around $175K. I’ve put about $4K into it and will be done with my rehab within 2 weeks. With one exception. There’s termite damage. I’ve been talking to the HOA for over 2 months and they have yet begun repairs. They keep telling me they can’t get a licensed contractor that wants the work.

In addition…there’s been talk for months about doing a total exterior rehab of the siding and roofs. A large assessment to each owner is looming. I feel sure the lady I bought the unit from saw it coming and that’s why she sold so cheap and quick. My bad luck. Now it has to be disclosed to any potential buyers. I could probably sue her but is it worth the effort and cost? I don’t think so. Lesson learned.

Research these things before you buy!!! I’m sure I’ll still make a profit of $30K or so, but it could’ve been more.

There is no greater teacher than experience.

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Re: Beware of HOA’s and condo’s… - Posted by Natalie-VA

Posted by Natalie-VA on April 04, 2005 at 13:26:39:

You may want to ask an attorney what you have to disclose. If the assessment is looming and not approved, and it’s obvious that the exterior of the units need a rehab, it’s not necessarily a hidden defect.

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In the Future - Posted by Mark-Chgo

Posted by Mark-Chgo on April 02, 2005 at 17:16:46:

When purchasing a condo, townhome or single family that’s part of an association, you should have, as part of your due diligence, a condominium rider for the association or the management to complete. Don’t count on the seller telling the complete truth. Even if they knew everything, it would be difficult to prove in many cases.

The questionnaire should ask for:

  1. A copy of the Declaration, bylaws, and other condominium instruments and any rules and regulations.

  2. A statement of any liens, including a statement of the account of the unit setting forth the amounts of unpaid assessments and other charges due.

  3. A statement of any capital expenditures anticipated within the current or succeeding two fiscal years.

  4. A statement of the status and amount of the reserve fund and any portion of the fund earmarked for any specified project.

  5. A copy of the financial statement for the last fiscal year.

  6. A statement of the status of any pending lawsuits or judgments in which the Association is a party.

  7. A statement setting forth what insurance coverage is provided for the unit owners by the Association.

  8. A statement that any improvements or alterations made to the unit by the current owner are believed to be in compliance with the condo declarations and bylaws.

  9. A statement indicating what percentage of the units are currently owner occupied.

  10. A copy of the Association’s current operating budget.

  11. Twelve months of the Board of Directors’ meeting minutes.

Condo associations should be familiar with responding to these requests and, with them, you’ll have a clear idea, from an impartial party, who is legally responsible for answering honestly, of the condition of the association and the units it covers.

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Re: Beware of HOA’s and condo’s… - Posted by CA

Posted by CA on April 01, 2005 at 17:17:43:

Per HOA agreement, doesn’t it privide timeframe for the associate to fix any major damage? I think maybe you can talk to the lawyer if they are playing game. Termite can go from 1 unit to another. It is a serious problem.

Did the seller disclose the termite problem to you before selling the condo(if not she is liable), or did you hire an inspector?

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Great List…But - Posted by Marvivi

Posted by Marvivi on April 04, 2005 at 13:05:48:

It can be a big hassle and sometimes impossible to get all these due diligence documents you listed. For example a Board may just conclude that it is none of your business to see 12 months of the board’s minutes.

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Great list - Posted by SteveA

Posted by SteveA on April 04, 2005 at 06:47:22:

I saved a copy of your list. Where were you last November? Ha! This unit was sold “as-is”. I did obtain meeting minutes and a copy of the budget, but only after we bought it (our mistake). Live and learn.

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It was inspected… - Posted by SteveA

Posted by SteveA on April 04, 2005 at 06:42:08:

I did have it inspected. There was visible water damage on the sheetrock above the two bedroom windows. My inspector told me I’d need to have the HOA figure out where it’s coming from and repair it, and I’d have to replace the sheetrock. When I took the sheetrock off, I discovered the termite damage. The previous owner probably didn’t know about it. The inspector didn’t catch the WDO damage. I question whether he should have or not. It wasn’t visible.

I’ve sent two letters to the HOA (besides a dozen phone calls). I’m talking to an attorney next.

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Now YOU own the termites - Posted by Killer Joe

Posted by Killer Joe on April 02, 2005 at 10:30:43:

CA,

The seller is not neccassarily liable for the termites or their damage. You said it yourself, “Termite can go from 1 unit to another”.

That’s why any building that is still part of the food chain needs to be inspected PRIOR to you assuming responability for such issues.

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But Nothing - Posted by Mark-Chgo

Posted by Mark-Chgo on April 04, 2005 at 13:30:12:

Anthing can be a hassle if you’re dealing with unreasonable people. Does that mean you walk away from a potential deal because someone on the board is lazy? Or worse, go forward with something that may have hidden issues, without ‘checking under the hood’?

It’s not up to the association to decide that it’s not someone’s business to know what he’s buying. Of course it is. As far as 12 months of meeting minutes, the seller has access to them or should already have copies. Or are they none of his business either?

The information and documents listed are asked for hundreds of times in my market, every single day, as a matter of standard practice, by most buyers and/or lenders. It’s not at all out of the ordinary for condo management to answer to them.

If you don’t request them, you’re taking a huge risk. Like buying a car without checking it out, only 10 times more expensive.

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Re: Great List…But - Posted by Natalie-VA

Posted by Natalie-VA on April 04, 2005 at 13:24:24:

I agree that they may not give up the meeting minutes, but a lot of the items on his list are required by law. Here are Virginia’s requirements:

§ 55-79.97. Resale by purchaser.

A. In the event of any resale of a condominium unit by a unit owner other than the declarant, and subject to the provisions of subsection J and § 55-79.87 A, the unit owner shall disclose in the contract that (i) the unit is located within a development which is subject to the Condominium Act, (ii) the Act requires the seller to obtain from the unit owners’ association a resale certificate and provide it to the purchaser, (iii) the purchaser may cancel the contract within three days after receiving the resale certificate, (iv) the purchaser has a right to request an update of the resale certificate in accordance with subsection D, and (v) the right to receive the resale certificate and the right to cancel the contract are waived conclusively if not exercised before settlement.

B. If the contract does not contain the disclosure required by subsection A, the purchaser’s sole remedy is to cancel the contract prior to settlement.

C. The information contained in the resale certificate shall be current as of a date specified on the resale certificate. The purchaser may cancel the contract (i) within three days after the date of the contract, if the purchaser receives the resale certificate on or before the date that the purchaser signs the contract; (ii) within three days after receiving the resale certificate if the resale certificate is hand delivered or delivered with the consent of the purchaser by electronic means and a receipt obtained; or (iii) within six days after the postmark date if the resale certificate is sent to the purchaser by United States mail. Notice of cancellation shall be hand delivered or sent by United States mail, return receipt requested, to the unit owner selling the unit or his agent. Such cancellation shall be without penalty, and the unit owner shall cause any deposit to be returned promptly to the purchaser. The unit owners’ association may also send the resale certificate by electronic means with the consent of the seller and the purchaser.

A resale certificate shall include the following:

  1. An appropriate statement pursuant to subsection H of § 55-79.84 which need not be notarized and, if applicable, an appropriate statement pursuant to § 55-79.85;

  2. A statement of any expenditure of funds approved by the unit owners’ association or the executive organ which shall require an assessment in addition to the regular assessment during the current or the immediately succeeding fiscal year;

  3. A statement, including the amount, of all assessments and any other fees or charges currently imposed by the unit owners’ association and associated with the purchase, disposition and maintenance of the condominium unit and the use of the common elements, and the status of the account;

  4. A statement whether there is any other entity or facility to which the unit owner may be liable for fees or other charges;

  5. The current reserve study report or a summary thereof, a statement of the status and amount of any reserve or replacement fund and any portion of the fund designated for any specified project by the executive organ;

  6. A copy of the unit owners’ association’s current budget or a summary thereof prepared by the unit owners’ association and a copy of the statement of its financial condition for the last fiscal year for which a statement is available;

  7. A statement of the nature and status of any pending suits or unpaid judgments to which the unit owners’ association is a party which either could or would have a material impact on the association or the unit owners or which relates to the unit being purchased;

  8. A statement setting forth what insurance coverage is provided for all unit owners by the unit owners’ association, including any fidelity bond maintained by the unit owners’ association, and what additional insurance coverage would normally be secured by each individual unit owner;

  9. A statement that any improvements or alterations made to the unit, or the limited common elements assigned thereto, by the prior unit owner are not in violation of the condominium instruments;

  10. A copy of the current bylaws, rules and regulations and architectural guidelines adopted by the unit owners’ association and the amendments thereto;

  11. A statement of whether the condominium or any portion thereof is located within a development subject to the Property Owners’ Association Act (§ 55-508 et seq.) of Chapter 26 of this title;

  12. A copy of the notice given to the unit owner by the unit owners’ association of any current or pending rule or architectural violation;

  13. Certification, if applicable, that the association has filed with the Real Estate Board the annual report required by § 55-516.1; which certification shall indicate the filing number assigned by the Real Estate Board and the expiration date of such filing; and

  14. A statement of any limitation on the number of persons who may occupy a unit as a dwelling.

Failure to receive copies of such documents shall not excuse any failure to comply with the provisions thereof.

The resale certificate, once received by the owner from the unit owners’ association, shall be delivered by the owner to the purchaser. The unit owners’ association shall have no obligation to deliver the resale certificate to the purchaser of the unit. The resale certificate shall not, in and of itself, be deemed a security within the meaning of § 13.1-501.

D. The purchaser may submit a copy of the contract to the unit owners’ association with a request for assurance that statements previously furnished pursuant to subsection C remain materially unchanged, or, if there have been material changes, a statement specifying such changes. The purchaser shall be provided with such assurances or such statement within ten days of the receipt of such request by the unit owners’ association. The purchaser may be required to pay the same fee charged a unit owner for the resale certificate, if any. Any fee shall reflect the actual cost incurred by the unit owners’ association in providing the assurances, but shall not exceed ten cents per page in copying costs or a total of fifty dollars for all costs incurred in updating the resale certificate. The unit owners’ association may also collect from the purchaser the actual costs incurred of any mailing or delivery requested by the purchaser pursuant to this subsection.

E. In the absence of a written agreement to the contrary, the failure of the unit owners’ association to provide the statement required by subsection D or the disclosure by such statement that there have been one or more material changes shall render the purchase contract void at the option of the purchaser.

F. The unit owners’ association shall furnish the resale certificate upon the written request of any unit owner within fourteen days of the receipt of such request. Payment of the actual costs of preparing the resale certificate may be required of the unit owner requesting it as a prerequisite to its issuance, but the total fee shall not exceed ten cents per page in copying costs or a total of $100, including and not in addition to, any fee charged pursuant to subsection H of § 55-79.84 and § 55-79.85, for all costs incurred in preparing the resale certificate, except that the unit owners’ association, upon mutual agreement with the seller, may collect for actual costs incurred, in addition to any fee charged pursuant to this subsection (i) a rush fee, not to exceed twenty-five dollars, for furnishing the resale certificate within three business days from the actual receipt of the request, (ii) the actual cost of any mailing or delivery requested by the seller pursuant to this subsection, and (iii) any actual cost incurred at the request and with the consent of the purchaser. Neither the unit owners’ association nor its management agent, if any, shall require cash or certified funds unless the unit owner is delinquent in any payments due to the unit owners’ association in excess of thirty days or if a check of the unit owner made payable to the unit owners’ association was returned for insufficient funds within the last six months.

G. When a resale certificate has been issued as required by this section, the unit owners’ association shall, as to the purchaser, be bound by the statements set forth therein as to the status of the assessment account and the status of the unit with respect to any violation of the condominium instruments as of the date of the resale certificate unless the purchaser had actual knowledge that the contents of the resale certificate were in error.

H. If the unit owners’ association has been requested to furnish the resale certificate required by this section and has been paid the appropriate fee, its failure to provide the resale certificate in substantially the form provided herein within fourteen days from the actual receipt of the request by an officer, director or agent of the unit owners’ association shall be deemed a waiver of any claim for delinquent assessments or of any violation of the condominium instruments, rules and regulations, or architectural guidelines existing as of the date of the request with respect to the subject unit. The unit owners’ association shall be liable to the seller in an amount equal to the actual damages sustained by the seller in an amount not to exceed $500. The purchaser shall nevertheless be obligated to abide by the condominium instruments, rules and regulations, and architectural guidelines of the unit owners’ association as to all matters arising after the date of the settlement of the sale. The settlement agent, as defined in § 6.1-2.20, when transmitting funds to a unit owners’ association or otherwise upon request, shall provide the unit owners’ association with (i) the name of the seller, (ii) the name and address of the purchaser, (iii) the address of the subject property, (iv) the date of settlement, and (v) a brief explanation of the application of any funds transmitted. Providing a copy of the HUD-1 settlement statement, unless otherwise prohibited, shall satisfy these requirements.

I. Subject to the provisions of § 55-79.87, but notwithstanding any other provisions of this chapter, the provisions and requirements of this section shall apply to any such resale of a condominium unit created under the provisions of the Horizontal Property Act (§ 55-79.1 et seq.).

J. The resale certificate required by this section need not be provided in the case of:

  1. A disposition of a unit by gift;

  2. A disposition of a unit pursuant to court order if the court so directs; or

  3. A disposition of a unit by foreclosure or deed in lieu of foreclosure.

K. In any transaction in which a resale certificate is required and a trustee acts as the seller in the sale or resale of a unit, the trustee shall obtain the resale certificate from the unit owners’ association and provide the resale certificate to the purchaser.

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Re: Great list - Posted by Mark-Chgo

Posted by Mark-Chgo on April 04, 2005 at 09:31:53:

Thanks. But I forgot one important thing. If you’re planning on purchasing a condo, or any home that’s part of an HOA, to keep as a rental, check the condo decs when you get them (shortly after signing your agreement) and make sure there are no restrictions involving renting units out. Different associations have different rules concerning them.

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Re: Now YOU own the termites - Posted by CA

Posted by CA on April 04, 2005 at 12:18:46:

Hi Killer Joe,

Can we assume HOA is primarily & legally responsible to termite infestation not seller or buyer? Would it be the same situation for mold, pests etc.?

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Meeting Minutes - Posted by Mark-Chgo

Posted by Mark-Chgo on April 04, 2005 at 13:44:00:

Natalie,
Even if the association refuses to provide the meeting minutes, the seller should already have copies, or have access to them. They are pretty important, as that’s where you will find out if there has been any official discussion of potential expenditures which would affect the finances of the association.

Mark

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Re: Great list - Posted by Killer Joe

Posted by Killer Joe on April 04, 2005 at 09:46:05:

Mark,

Just to add an FYI, Some lenders I have dealt with will not lend into a complex that is more then 39% NOO.

KJ