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Buying a condo when HOA is in litigation??

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Buying a condo when HOA is in litigation??

Old 03-31-2009, 07:47 AM
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Default Buying a condo when HOA is in litigation??

Trying to make an offer on a condo, previous buyer fell through - unfortunately it is looking like I will have the same problem.

Seems the condo HOA is "under litigation" which prevented the previous buyer from being able to obtain financing. I am having similar problems, so far the lenders I have talked to don't want to touch anything "under litigation." To be clear, it is not the particular unit - but the homeowners assocation of ~100+ units that is involved.

After doing some research online, I found that yes in fact the HOA is involved in a slip-and-fall lawsuit which started in august of last year. So from last august until the lawsuit ends, it is almost impossible to buy, refinance, etc, a condo in this complex?? That seems a bit insane. Or maybe it is insane for me to be interested in it still - but surely this is a common occurance for a condo complex...?

Any comments/thoughts? Obviously I would not be pursuing this if it was not a good deal. My mortgage broker said no problem getting the $ based on my financials but that the pending litigation was a red flag that would stop his lenders..
Old 03-31-2009, 08:16 AM
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Please!!!!
Demand to see the income history of the HOA.
Many condos are in in horrible shape because of troubled owners not paying.
If they are only collecting 50 % of the established fees, paying owners would have
to pay double to make up the income.
Old 03-31-2009, 08:37 AM
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Originally Posted by evensen View Post
Please!!!!
Demand to see the income history of the HOA.
Many condos are in in horrible shape because of troubled owners not paying.
If they are only collecting 50 % of the established fees, paying owners would have
to pay double to make up the income.
What does that have to do with my question?

This isn't a brand new building, it's an older complex with at least some established residents. Don't get me wrong, I am absolutely sure there is some of that going on, as well as a few foreclosures in the complex. (this is one) But last I checked, millions of people live in condos and they are not all screwed?
Old 03-31-2009, 08:37 AM
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Full disclosure: I'm in NJ, I'm not a lawyer, and I didn't sleep in a Holiday Inn last night!

That said, I live in a condo and served on our board for several years. The HOA should have insurance in place for slip-and-fall type events. If you can obtain proof of that, it might open mortgage doors (MIGHT being the key word, mortgage matters being so screwed up these days that I can surely understand why a potential lender would be skittish)
Old 03-31-2009, 08:49 AM
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Originally Posted by Flot View Post
What does that have to do with my question?

This isn't a brand new building, it's an older complex with at least some established residents. Don't get me wrong, I am absolutely sure there is some of that going on, as well as a few foreclosures in the complex. (this is one) But last I checked, millions of people live in condos and they are not all screwed?
I think you shorted evensen with your response. Your initial post was in the category of financial concerns, and his response added a couple of related points for you to consider (if you haven't already).

Without needing to speak for him, let me explain how I would take his information; If a HOA has a number of delinquent owners and If the HOA board isn't strong with their financial smarts, then they might have skimped on insurance as a cost-saving measure to lessen the load on their neighbors.

Another point he made is that getting into a condo with a number of financial issues (or financially-troubled owners) will make that condo hard to sell because it will have a stench to the real estate and to the financial community. I'm troubled by a HOA that hasn't been able to settle this kind of nuisance suit by now, so there's that...

IF the suit is from a legitimate fault (cracked sidewalks, super-waxed lobby floors), then consider the cost of assessments to correct these hazards; something their insurance carrier will most likely demand before they get renewed. Assessments born by just the paying customers will add to the tipping level. Is the HOA solvent with good reserves?
Old 03-31-2009, 08:59 AM
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Bamaboy - you said "I'm troubled by a HOA that hasn't been able to settle this kind of nuisance suit by now". Is 6-7 months really that long a stretch? I know that some insurance cos. go through phases where they absolutely won't settle anything once lawsuits are filed; I also know there are some slip-and-fall lawyers that won't settle unless/until they get a good read on a jury.
Old 03-31-2009, 09:40 AM
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The claim has put a cloud over the title and lenders will not touch it. I would do a very close investigation as to the finances,insurance coverage,asbestos problems,pool condition,lighting,parking area,walkway,stairwells etc. Many HOA end up with some or all Nazi members and they will make life miserable and they always have some costly issue. If I found one problem I would run!!! I have been involved with several, never again.
Old 03-31-2009, 09:41 AM
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Don had asked:
Bamaboy - you said "I'm troubled by a HOA that hasn't been able to settle this kind of nuisance suit by now". Is 6-7 months really that long a stretch? I know that some insurance cos. go through phases where they absolutely won't settle anything once lawsuits are filed; I also know there are some slip-and-fall lawyers that won't settle unless/until they get a good read on a jury.
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You make a good point. I think we can mostly agree that a quick settlement is often the least expensive. It's also the Insurance Company's litigation, so it's their call. Allow me to amend my statement to, "I'm troubled by an HOA's Insurance carrier..."
Your comments on the details of the suit are also relevant, because a plaintiffs' attorney knows how much he's able to go for, and he generally needs a good case for his brand of extortion to produce enough fees to make it worth his while. That's what prompted my statement; the concern that the slip/fall was a real liability factor rather than a nuisance.
Mea culpa.
Old 03-31-2009, 09:54 AM
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Gotcha Rick, no problem.
Old 03-31-2009, 10:17 AM
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As noted, the law suit raises issues with the title, and puts additional risk on what would be the banks collatera as they cannot fully quantify the exposure of the lawsuit. Ergo, the bank could ultimately be in the same position as the guy who built a boat in the basement.

Reverse the roles - would you loan out money on a unit in a complex that is subject to litigation?
Old 03-31-2009, 10:33 AM
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Originally Posted by RI Builder View Post
As noted, the law suit raises issues with the title, and puts additional risk on what would be the banks collatera as they cannot fully quantify the exposure of the lawsuit. Ergo, the bank could ultimately be in the same position as the guy who built a boat in the basement.

Reverse the roles - would you loan out money on a unit in a complex that is subject to litigation?
To be honest, I don't see how it changes anything. If the condo board were not in litigation at the moment, someone could walk in, pour crisco on all the sidewalks, and it would be in litigation next week. I have never owned a condo but I assume that for a large complex, being sued every now and then is simply a fact they have to deal with.

I understand that it is an "unknown" and that it could mean assessments, etc. But let's pretend that they are insured and the suit is looking for damages within the policy limits (Which I imagine is what a prudent attorney would be going for)... I am working on verifying both of those.

I think most of the issues brought up above reflect the problems of ANY hoa, this particular lawsuit doesn't seem to be unique and I'm just not sure how it effects the lending. I could have bought in august and the potential liability to me or my lender would not be any different today.

I am not clear how saying "there MIGHT be a judgement next week" is any different from saying "there MIGHT be an accident next week." That's why everyone requires liability insurance.
Old 03-31-2009, 10:44 AM
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Originally Posted by bamaboy473 View Post
Without needing to speak for him, let me explain how I would take his information; If a HOA has a number of delinquent owners and If the HOA board isn't strong with their financial smarts, then they might have skimped on insurance as a cost-saving measure to lessen the load on their neighbors.

Another point he made is that getting into a condo with a number of financial issues (or financially-troubled owners) will make that condo hard to sell

Is the HOA solvent with good reserves?
Bama, fair points - however, to the best of my knowledge, this particular condo is no worse off than any of the other condo communities in South Florida. I assume that they are better off only in that this was not an area of tremendous turnover or new construction where some of the buildings around here are 70% vacant. I do appreciate the overall condo comments but am really trying to deal with this one specific issue.

I have not been able to actually get ahold of anyone at the HOA to answer questions about budget, etc. I assume they'll be tightlipped about the lawsuit so that's the one I am most trying to research "externallly".
Old 03-31-2009, 10:45 AM
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The difference is that the Condo IS currently in litigation and an exposure has been created. A bank cannot deny a loan on the POSSIBILITY that someone in the future may sue the condo for some unknown posible reason.

In the firs example, there is actual exposure, in the latter, there is no actual exposure, and unless you have an in with Nos Dramos, there may never be an exposure.

Sure, the lawsuit may settle within the bounds of the inusurance policy, but 1) what if it does not; 2) what happens at policy renewal time? These are both actual exposures that exist in a lenders eyes.

Look at it this way too:

I go into a bank for a 100K loan. I say to the bank, oh by the way, I go on trial for murder next weak and could be sent away for 25-life. Will they lend to me? Why not, because theri capital is exposed to a liability that they KNOW BEFORE making the loan. Of course, I could get the loan, walk out the door, murder someone and still be facing 25-life. The difference is that the liability on the banks capital DID NOT exist before making the loan.

Any lender that would lend, at market rates, to a unit that has a known unquantified exposure on it is acting completely irresponsible with their capital. The risk reward vis-a-vis their capital is simply to great to take on the exposure at market interest rates.
Old 04-01-2009, 03:01 PM
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At the risk of being dissed once again, I can not help but add:

A good RE agent can look up the purchase history for the past three or four years.
If many units in a particular development were bought in 2007, let's say, there is potential for problems. If many of the owners are far under water, their motivation to keep current is very low. Rising unemployment will also put many units at risk.
If it is an established development full of mostly owners, not renters, your chance for success is much higher. I do wish you good luck and tight lines.

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