Be Careful when Buying in Condo HOA

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Submitted by Happs on August 19, 2008 - 12:00pm

Please be careful when buying a condominium in an HOA because a lot of them have unplanned future expenses and poor reserve accounts to handle unforseen expenditures. It's wise to read past minutes of board meetings and study the balance sheet before you buy. Check out this article from last week's UT on the topic:

http://www.signonsandiego.com/news/metro...

Submitted by peterb on August 19, 2008 - 12:37pm.

Very true. This is why most lenders dont like to lend on condo's that arent mostly owner occupied and mostly sold. If you find a screaming deal on a condo but the complex is less than 70% sold, watch out. Someone has to pay to maintain etc....
And make sure the HOA fee's makes sense for future expenses and maintenance. Again, someone will have to pay for these things and guess who it's gonna be?

Submitted by urbanrealtor on August 19, 2008 - 1:01pm.

I am really glad to see this getting more airtime.

I have threatened to cancel escrow several times recently when a bank or the overtaxed escrow firm they contract with have failed to order or deliver hoa docs in a timely manner.

It really is important. This is especially true during the abbreviated inspection period that most bank-sellers want buyers to abide by.

EG: If you have a 7-day inspection contingency that is removed passively (like it ceases to exist when the appropriate date passes) and the seller bank delivers hoa docs on day 8 showing 2 special assessments of 10,000 each, you might be in a shitty situation where you have to give up either on the deposit or eat the assessment cost. If this happens, you can fight it but succeeding might involve attorneys or courts.

Point is, really make sure you get this as a buyer and that your agent knows how to read it.
Good luck.

Submitted by pabloesqobar on August 19, 2008 - 3:05pm.

I have a friend with an HOA problem, with a twist. She purchased an over-priced one bedroom condo in Mission Hills at the peak. It was a new condo conversion, of an old crappy apartment complex. The final units sold last year. Unfortunately, there have been many problems with the buildings. Many plumbing issues have caused many floods resulting in substantial damages to several owners. Who knows if the prior apartment complex owner disclosed any issues to the condo conversion developers. If they did, it doesn't appear those disclosures made it to the end purchasers of the condos. Now you have a brand new HOA struggling to stay afloat amid all these damage claims. There should have been a way to obtain a history of damage claims submitted to the apartment complex's carrier - before it ever became a condo conversion. She couldn't be more miserable as a first time home owner.

Submitted by urbanrealtor on August 19, 2008 - 5:02pm.

This happens a lot. There is a disclosure called a CLUE report (comprehensive loss underwriting exchange) which looks for insurance damage.
The problem is that in older buildings, often this is just unfortunate timing on the part of the buyers (both the developers and the owners). I had a sewer inspection done on a 20's era property recently. This was a camera inspection where they actually send the cam with a light down the sewer main. This is the most exhaustive inspection you can get short of actually digging up the lines (which is prohibitively damaging and costly). It passed with flying colors but the entire line (with its 83 years of wear collapsed a month later. While inspection and information are good things to have, in the end, some amount of purchasing is a crapshoot. While we try to minimize this, it is a necessary evil.

Out of curiosity, is this the place on west Penn?

Submitted by CricketOnTheHearth on August 19, 2008 - 5:12pm.

Is it even possible to get a condo without an HOA??
I thought they all had them.

As far as % ownership... I think there is a shortage of rental properties in the county, so condos are often recruited to take up the slack. A lot of these apartment complexes that were condo-converted, never should have been (= GREED) and now they are half-unowned, and the would-be sellers are renting out the rest in a desperate attempt to maintain cash flow. If they had just left them as apartments they would have full cash flow already.

Also the problem is that in this county, there is a super scarcity of mid-size, mid-price housing. Your choices are either a
$1/2-million oversized house or an apartment with a mortgage.

Submitted by CA renter on August 19, 2008 - 5:13pm.

My very conservative father (Great Depression baby), who never had any debt except small mortgage loans, was foreclosed on during the last downturn in LA precisely because of these special assessments.

He refused to go along with the HOA because he didn't think the work was needed (new asphalt, new roofs, etc.). They fought so hard he got death threats, and lawyers were fighting back-and-forth. Real ugly.

He gave up and let it foreclose. He had put 30% down when he bought, and lost all of it.

The problem is very few homes are being built without HOAs. This should definitely be changed, IMO, even if buyers had to pay extra up-front to help pay for infrastructure costs. No Mello-Roos! It should be factored into the cost of the house...therefore, the developers should pay LESS for the land.

Then, there's this story out today:

Jim Greenwood is parking his 2007 Ford F-150 in the garage, but he’s not through battling the Frisco homeowners’ association. He says the association has declared the iconic Texas truck not upscale enough to leave in his driveway.

http://www.dallasnews.com/sharedcontent/...

Submitted by TuVu on August 19, 2008 - 8:30pm.

I went to the Dallas News link. Thank God we bought an older house with no HOA. Of course, there's the family down the street who appparently decided to paint the house the same color as the yellow line dividing the road. This is a convenient landmark, though. We tell friends who have never been here, "Go past the house painted the same color as the line in the street."

OT: I am embarrassed that I got sidetracked on the Dallas News with a link to a quiz about how much one knows about the show "Dallas," which started 30 years ago. I got every one of the 10 questions right! I announced this to my husband and he said sarcastically, "Woot. Gonna put that on your resume?" In my own defense, I told myself years ago that if the whole year of Bobby off the show is written off as a Pam dream, I will never watch that show again. And I DIDN'T.

Submitted by SD Realtor on August 19, 2008 - 9:12pm.

HOAs are super tough. A few things that may or may not help you the buyer is to be super proactive. Don't be afraid to try to contact board members. It may not be easy but if you are persistent you can find them.

UR made good points about things such as a CLUE report (note that CLUE reports go back 5 years I believe) and also a CLUE report gives the actual amount paid out for a claim and then the insurance code for the claim. Finding out other details about the claim itself is your task but a CLUE is essential to ask for.

Also as a buyer always make sure that you don't ever let any contingency period pass in a passive manner. It really is your agents job to make sure that when a contingency date is rolling up, to then be proactive and send a contingency removal form that explicitely keeps in place, any such contingencies that cannot be removed for lack of information. This would include filing a notice to perform for any documentation that has not been delivered to you.

The delivery for HOA docs is lame. HOA docs are ordered from escrow. An HOA demand is placed (usually with a property manager or a 3rd party such as Condo Certs) then the docs get sent to escrow and then to you or straight to you. The process rarely happens in a timely manner. While it is clearly not the buyers responsibility to get those docs delivered in time, (because in reality there is nothing the buyer can do) it is the buyers (or more likely) the buyers agent to handle the situation in a responsible manner. Notice to perform, contingency removal with exceptions noted, and even an addendum explicitely stating buyers right to retain that contingency until after delivery and examination of the HOA docs are tools that are at the disposal of the realtor.

Another item of concern is the developer. Suppose you are considering purchasing into a development that is less then 10 years old. Suppose that there are builders defects and there will be a lawsuit where the residents or HOA plans to bring action against the developer. Let's say for instance plumbing issues, or some big ticket items... Okay so if the developer declares bankruptcy or is out of business who do you suppose will have to then pay to remedy those defects?

Submitted by CA renter on August 19, 2008 - 11:36pm.

All excellent points, SDR. Thank you!

Submitted by sdgrrl on August 19, 2008 - 11:41pm.

I worked in the Commercial Dept for one the biggie insurance companies for a while and many of the things I have seen has kept me from ever wanting to buy a condo or live in a PUD (Planned Urban Development).

The most common problem that we received calls about were for plumbing issues; sometimes huge and sometimes minimal.

What condo owners don't realize often is that even if their unit has sustained a covered loss under the condo's huge blanket policy, the Board of Directors may not allow it to be passed. It is soley up to the Board on whether or not they even want to submit a claim and many. They are elected members and their word is the "word". Each claim submitted causes the premium to go up, so the Board is wary of what they submit.

Also, the premium for some of the large HOA's is in excess of $125,000 a year. The deductible on these large policies can be as high as $25,000. So, for the person who has a fire in their kitchen or a tree smashed their window...the damage has to be over $25k for the policy to even kick in.

Loss Assessment which has been mentioned above is another huge thing that people can face in the HOA situation.

My advice to individuals living within the world of HOA's is to be insured to the max.

1. Understand and know explicitly the terms under your Association's blanket policy.

2. Read your CCR's, because they are the "law" and will override even what your insurance companies claim they will cover. For instance, one HOA we covered had in their CCR's that they would not cover any damage to roofs, even though we as their insurer would cover roof loss.

3. Make sure you have your own building policy. If your HOA has a $5,000-$25,000 deductible make sure your own personal policy has a deductible that is $500-$1,000. Your own personal policy will cover the remaining deductible from the enormous Association's one. Also, if your Board decides to not send your claim, which is their right, you won't be scr*wed.

Another note, most HOA insurance policies...say in the instance you suffered a complete loss of your condo, they would rebuild your walls and stop at the dry wall and put down a slab and cocrete. So cabinets, flooring (Pergo, harwood, etc) would be your responsibilty.

4. Make sure you have "Loss Assessment" coverage. Many insurance companies don't offer more than $30,00, but that bit could be huge if you are ever faced with that situation.

5. Ofcourse, make sure you have your own personal belongings covered; computers,tv's, clothing.

I am not advocating one insurance company, but it is so important to understand and to have adequate coverage. Often, people want to save a buck, but skimping on your insurance really isn't the direction to save money, just ask someone who has been through a really bad HOA loss situation.

Its hard for me to feel bad for people who do get into bad HOA situations, because all the information and resources are available to those who don't mind spending the hour talking to their insurers.

Keep your butt covered at all times.

Submitted by svelte on August 20, 2008 - 6:57am.

Very good advice, sdgrrl.

I've owned a condo before and was so frustrated with the board that I ran for the board and became president within 1 month of deciding to do so. Luckily I was able to get the other board members to see what needed to change and we got the association back on track, but it is a thankless job that I only took on to protect my property value.

This was a brand new condo complex and we only lived there 4 years, but by the time we left the number of renters in the place was approaching 50% which would have affected our ability to sell, so we sold quickly.

For this reason and the maintenance reasons discussed in this thread (especially with apt conversions), I would not even consider purchasing an older condo and certainly not an apt conversion!!! If you buy an older unit, you are just asking for a sky-high special assessment to cover some unforeseen major repair.

Think about it: some saavy investor owns an older apt complex and sees it is gonna cost him a bundle to repair in the next few years. What to do? Why, throw some lipstick on the pig and sell the units to unsuspecting, naive first time home owners as condos!! They'll end up ponying up the repair costs. My intuition tells me that is the real reason for the rash of conversions.

Get a condo that is as new as possible, if condo life is the life for you. And be active on the board, or at a minimum attend the monthly meetings so your voice is heard. Believe it or not (contrary to what you read in the paper), they usually listen to reasonable people.

Submitted by mixxalot on August 20, 2008 - 10:01am.

Great information! And why I do not want a condo- sure the maintenance is addressed but headaches and risks just not worth it. And true- the issue with southern california is lack of mid-priced SFH properties. I see the big 2-10 million dollar homes and the crappy 500k condos in San Diego and not much in between. Its as bad as New York and San Francisco.

Submitted by pabloesqobar on August 20, 2008 - 10:26am.

urbanrealtor wrote:
Out of curiosity, is this the place on west Penn?

Nope. I believe it's West Lewis. Another interesting thing she told me yesterday: The HOA submitted the first flood to their insurance to cover the claims. This was a flood where a toilet tank broke and water flowed out of it for several days apparently. The owners of that unit only stay there on the weekends and didn't know it was flooding. Next to their unit was an empty unit. That owner died. Next to that unit is my friend. She woke up in the morning to soaked carpet. The water had flowed through all 3 units. Fortunately, my friend had her own insurance which covered some of her damage. However, she just found out that the HOA's insurance carrier paid the HOA for the damage to her unit. The HOA never cut her a check, never even told her they had submitted her claim to the insurance company. They told her they wouldn't cover her claim. I understand she shouldn't receive a windfall, but that's between her and the insurance companies. If her insurance company wants to seek reimbursement if she receives payment from another source they may have that right, contractually. Or the respective insurance carriers will engage in subrogation. However, it seems like insurance fraud for the HOA to submit a claim to their carrier, receive the funds, and keep quiet about it.

More importantly, why would the HOA even submit this claim to their carrier? This was a broken toilet in someone's unit. That owner did not have his own insurance but the HOA's insurance covered his loss. Why? I would think that should be the responsibility of the owner.

Submitted by ProtectYourDrea... on June 10, 2009 - 12:02pm.

Though this is an old post, it is an important one. Unfortunately, we see condo nightmares all the time. Now that there are so many apartment conversions, insurance companies are increasing premiums for condo insurance. If you need a trusted advisor to help you with condo insurance, please log on to www.fast2insure.com. We have been able to help many clients, and we may be able to assist you too.

Submitted by sunny88 on June 10, 2009 - 1:52pm.

Does anybody have an idea what the best way to check the financial positon of an HOA is? Are there any public records which can be checked?

Submitted by PadreBrian on June 10, 2009 - 2:09pm.

Yeah, you email them. By law in the state of California, they have to give you their annual budget report if you request it.

Submitted by Ren on June 10, 2009 - 4:05pm.

ProtectYourDreams.com wrote:
Though this is an old post, it is an important one. Unfortunately, we see condo nightmares all the time. Now that there are so many apartment conversions, insurance companies are increasing premiums for condo insurance. If you need a trusted advisor to help you with condo insurance, please log on to www.fast2insure.com. We have been able to help many clients, and we may be able to assist you too.

I see someone's working on their Google placement. I wish there were moderators to delete this crap...

Submitted by Ren on June 10, 2009 - 4:05pm.

ProtectYourDreams.com wrote:
Though this is an old post, it is an important one. Unfortunately, we see condo nightmares all the time. Now that there are so many apartment conversions, insurance companies are increasing premiums for condo insurance. If you need a trusted advisor to help you with condo insurance, please log on to www.fast2insure.com. We have been able to help many clients, and we may be able to assist you too.

I see someone's working on their Google placement. I wish there were moderators to delete this crap...

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