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ETpro's avatar

What are the issues in buying a condo where the condo association has fallen apart?

Asked by ETpro (34208 points ) September 7th, 2011

My son’s looking for a condo or residence to puy in the area around Cambridge, MA. He’s found a condo in a 4-unit building. It’s small but has plenty of room for him, and if he and his lady friend get serious, she could fit in easily too. It’s a bank owned property being offered on short sale at a very attractive price, and he has the cash to do the deal. No financing is allowed. It must be a cash purchase. So far, it sound terrific. However, we learned today that there is some issue that’s caused the condo association formerly responsible for the building (and I believe the 4-unit building next door) to fall apart. The occupants of the three remaining units in the building are not paying their condo dues.

The property looks well kept. It’s clear that somebody is still caring for the common areas. How does condo association disassociation usually get resolved? What is the worse case scenario, and what are strategies my son might use to actually take advantage of the dilemma? Also, what are the issues with buying on a short sale?

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27 Answers

Cruiser's avatar

I would strongly encourage you/your son to enlist the services of a Real Estate attorney for this one. There could be all sorts of hidden liabilities created in the wake of the actions and inactions of the association especially financial liabilities, liens and other obligations a lawyer would provide much better counsel on than I can in this unique situation.

SpatzieLover's avatar

Short sales can take 6–9 mos to go through, so if your son is looking for right now, he’d need to be very patient.

Condo Asssociation falling apart would be of the greatest concern here. If no one is paying dues, there will be no money for plowing, mowing, maintenance-etc. Personally, I’d steer clear of the entire situation, but I agree with @Cruiser. He should contact an attorney if this is a serious consideration. Mind you, he’s then wasting time & money on a place that may not be worthy.

SpatzieLover's avatar

Something else to consider is that the association is most likely not paying their insurance then either. Each person in the building can then be sued if something occurs on the property.

JLeslie's avatar

Look over the condo docs. There should be some sort of provision. Maybe a new board gets elected in and it is self managed by the people who own there. When you say the condo association has fallen apart, I am not sure what that means? Do you mean the management company hired to look over these things went out of business? Judi has done property management for years and is a realtor, I will send this to her.

SpatzieLover's avatar

@JLeslie Condo Assoc collapses are a part of reality due to the econonmic downfall. People don’t pay there dues, as the start defaulting on their loans. Many associations have gone bust due to years of non-payment.

JLeslie's avatar

I’ll also ask my ex real-estate partner about it also. She still works in Florida, condo heaven.

I forgot to answer about the short sale. It can take a couple months for the bank to respond to the offer. They will typically accumulate a bunch of offers, finally get the place appraised and then tell you if theu accept your offer or not. On rare occassionnthey just did an appraisal and the deal fell through and the deal can happen on days or weeks. Make sure your contract says you will inspect after they accept the offer, because you don’t want to inspect and then have two months pass by while things can go wrong. Although condos in buildings tend to have much fewer issues than houses.

ETpro's avatar

@Cruiser I told him that while we were in the car with his agent. He has a buyer’s agent who showed us the property. The agent said it would be money well spent, and listed the sorts of encumberances and liens that we might encounter. He also said he knew several good attorneys, but on that, I think we;ll do our own fact finding just so there is no potential conflict of interest.

@SpatzieLover He’s moved back in with us for the time being, so we can bide our time. He was deployed to Afghanistan till the end of July, and while he was out the roomies he was living with got in a spat and all edcided to go their separate ways. Fortunately, he got back just in time to get his stuff moved, partly into storage and partly here with us in our small condo. The reason I’d even consider enlisting an attorney and checking it out is the place is a 2 BR. condo on the first floor of a nice building. All hardwood flooring except terrazo tile in the kitchen and bath. It’s in a nice neighborhood with great shopping and services access nearby and not far from a T station. And it’s $65,000. In the Boston area, that’s a steal. The insurance issue is one that the buyers agent brought up. We would need to find out if the insurance is lapsed, and see what can be done to mitigate that risk. Even insuring your own unit would be futile. if the place burned down, you can’t relace a single unit.

@JLeslie A new board is what I was thinking. My guess is that the former owner was the head of the association, and when he got in financial trouble and had to move out or be evicted by the bank, that’s when the association blew up. I’d appreciate whatever insights your former partner can pass along.

SpatzieLover's avatar

$65K is a steal in most cities…I’d bide my time and go for it after checking with an attorney. Since he’s in an idealic situation he can wait out the bank. As long as he puts in a decent bid, he should get the condo.

Cruiser's avatar

@ETpro If you have not already done so….knock on a few doors and talk to the other owners. Often there may be one person who is responsible for sinking the ship none of the others want to deal with. Last thing you want is some A-hole for a neighbor.

ETpro's avatar

@SpatzieLover That’s just what I was thinking. If all the issues can be resolved, a 26 year old owning his own home free and clear is not a bad start in life.

@Cruiser That’s excellent advice. We will definitely do that.

SpatzieLover's avatar

@ETpro I agree.

I’d look at it as not only owning free and clear, but saving himself the hassle of renting for less than the cost of renting. The average for the area must be between $10,800 to $13,200 annually in rent payments. Even if he did take a mortgage (10 or 15yr fixed), and he paid ahead he could be free and clear in less than 6yrs. Pretty great!

gailcalled's avatar

Jeez. $65,000 in the Cambridge area? Buy both the buildings and manage them yourself. Where in Cambridge?

My son had a charming 2 bdrm third-floor condo on Sacramento St. and it cost him a lot more than that in !995.

ETpro's avatar

@SpatzieLover Exactly. I just checked Craigslist, and in the same area, the lowest 2 BR rental listed is $950/mo.. There’s only 3 listings at that, then they run from $1,000 to $1,250/mo before you hit the first 3 BR at $1,300.mo. There are plenty of 2 BR units well above the $1,300 threshold. All depends on location and how welt appointed each property is. So yeah, the next few years while he’s finishing his Masters, he’ll save more than that amount in rent that would be money gone forever.

@gailcalled I already planted that seed. Unfortunately after the first purchase, he’d need a rich uncle to cosign for the mortgage on the entire property. But on the fortunate side, he has just such an uncle. :-)

Pandora's avatar

Yeah, I would find out more about it. I just saw something on tv on one of those first time home buyers and find out what will happen if people in the building go bust. If the building is abandoned than what will it mean for his property value and the care of the building. When that happens sometimes the banks will not lend money to any future residents and the only way they can buy in is to pay everything themselves up front. Not everyone will have that kind of cash.

JLeslie's avatar

Another thing I was thinking is the Short Sale contracts should have a statement saying you can get out of the contract. It takes so long for the banks to respond that even if they accept your complete offer you should be able to get out once they do respond within a certain amount of time of them delivering the information to you, unlike other regular sales contracts. So there may be no harm in putting in an offer, seeing what actions are taking regarding the board in the meantime, and read over the condo documents well. The board falling apart would not scare me off as long as I were confident steps were being taken to reinstate a board.

ETpro's avatar

@Pandora The common areas of the building show that someone there is taking very good care of things. The gardening around the place was immaculate. The only thing on the exterior that is in need of attention is a set of wooden steps leading up to a concrete deck that surrounds the entire property. The building is set atop a hill that’s about 10 feet above the road. We did meet one of the owners in the first floor unit on the opposide side of the building and he seemed a friendly and cheerful sort. On the surface of it, there is no appearance that everyone there is about to or has already abandoned the building. It’s far to well cared for to suggest that’s the case.

@JLeslie He’s thinking of posting an offer and ernest money for first right of refusal. We’ll see what the attorney has to say. The bank may want to move pretty quickly. The unit felll back into their hands a year ago and they had it listed for a year at a much higher price and got no offers. They just dropped the price a week ago.

BTW, the condo I’m in went through the same sort of board trouble last year and all owners were motivated to get things resolved. We did, and things are running smoothly now. So it is possible to do if all the parties involved want it to happen.

gailcalled's avatar

@ETpro Have you peeked at the hidden systems? Plumbing, wiring, leaks, damp basement. Buildings have so many well-kept secrets, as I am continually discovering in my home.

Who is doing the gardening and who is paying him? That should give you a hint about maintenance.

I hope that you and your son can pull it off.

ETpro's avatar

@gailcalled I did test the water pressure and it was fine. Nice of the city not to have turned off the water service after so long a vacancy. No signs of any leakage in the interior of the unit. Electricity was on and lighting in rooms all worked. We went into the basement. The listing indicated the building was built in 1900. It had a field-stone foundation which appeared to be in good order. There was no smell or sign of water entry. Being it’s over 10 feet above street level and the street is not prone to flooding, I would guess it’s above the water table. There were no signs of rodent droppings about, which is encouraging. In any case, we’ll hire a professional inspector to check it out before any deal is done.

gailcalled's avatar

I just had a look at the new Central Square area. Boy, has that come up in the world. Lots of really nice-looking condos at fairly high prices, however. 450K – 800 K. The MTA is really a model of its kind. (My son used to take his bike by T to everywhere.)

JLeslie's avatar

@ETpro Do you have a realtor, or is the whole deal going through the listing agent? It is not unusual to ask the realtor if they have an idea how fast the bank might move if you want to try and get an inkling. The listing agent might have many listings with the same bank, and might have an idea how things usually go. The is no guarantee with each deal, but still might be worth asking. The realtor might know if they are going to hold all offers for a few weeks, or if the bank is going to use an already recently done appraisal etc.

ETpro's avatar

@gailcalled Putting in a T Station always raises the neighborhood. New shops and restaurants spring up and prosper. With so many construction workers sitting idle, it is heartbreaking to see such a worthwhile projectile sitting therre with no work being done,

@JLeslie My son has a buyer;s agent who found the property for himl

JLeslie's avatar

@ETpro Have the agent find out whatever info she can.

ETpro's avatar

@JLeslie He’s already doing that. The whole issue with the condo associaton was brought to my son’s attention by his agent.

gailcalled's avatar

@ETpro: Keep us apprised. Personally, I am interested, in the abstract, in real estate as a conservative investment.

What kind of mortgage can your son (or his uncle) get. How far out and at what interest rate?

ETpro's avatar

@gailcalled That’s what is so attractive about this. It is a cash only deal, and he can do that. So there would be no mortgage.

gailcalled's avatar

@OTOH. that’s a lot of cash-in-hand, even though I assume that the sale price is discounted. Hurry up, or I might drive to Cambridge and buy it. No one ever went wrong with real estate in that area.

I remember drooling over the houses of my friends’ parents in the 1960’s on Brattle, Garden, Linneaen, etc. streets.

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