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Beware of Condos’ Potential Pitfalls

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RISMEDIA, Feb. 20, 2008-(MCT)-Thinking of buying a condominium? It’s a good idea for all sorts of people, from empty nesters downsizing to young professionals who don’t need a yard and a big house yet.

But purchasing a condo works best when buyers understand all the potential challenges. Robert Meisner, a Bingham Farms, Mich., lawyer nationally recognized for his expertise in condominium and community association law, offers some insights.

Q. What’s the biggest mistake people make when buying their first condominium?
A
. They don’t understand what they’re getting into. They don’t understand that they are potentially responsible in part for not only their unit and the roof on their building, but they may be responsible for the roofs and the common areas on the rest of the condo project.

So while their unit and their building is inspected and looks good to them, they need to find out as much as they can about the condo project as a whole, to make sure they’re doing the right thing in getting into a condo project where there are not serious problems.

Q. So you’re talking about special assessments?
A
. Not just special assessments, but how many delinquencies does the association have and are they actively pursuing them and how? Some associations have a good aggressive collections policy while others sort of throw their hands up.

So one of the things that a prospective purchaser wants to do is understand the physical condition of his unit and the entire project, but he has to examine even more carefully now the financial condition of the association.

Q. And a buyer has the right to get that information?
A
. He may not have a direct right, but the buyer should be insisting that the seller get the financial statements and all the financial data that he can from the association. The seller has a right to look at the books and records and get the financial data. And that should be a component of the purchase agreement.

When we get hired by a purchaser, we try to find out as much as we can about the operation of the condo. I may call the management company. I may call the president of the association. I will certainly look at the condominium documents and apprise the purchaser of some of the restrictions that may impact that purchaser.

There are always restrictions in the condominium documents, and a lot of times the purchasers aren’t aware of them. Or the real estate agent will say, “Don’t worry about it, they won’t enforce it.” And then they move into the condo and they find there’s a restriction on dogs and they’ve got a dog and they’re stuck in that situation.

Q. Do most first-time buyers understand they have to pay a condo fee in addition to their monthly mortgage?
A
. I think they understand that. The problem is, depending on the association, the monthly association fee may or may not be realistic. And they need to understand that that assessment is going to go up, particularly when they buy new construction or a conversion.

Q. What are some of the problems you’ve seen buyers encounter going into a conversion project, where an existing apartment building is converted into a condominium?
A
. There’s a tendency on the part of some developers, not all, to lowball the assessments. That doesn’t always occur that way, but that happens. So the association is going to have to get the money somewhere, and they may have to borrow the money or raise the assessments to fund the operation of the association.

In some of these conversions, you have unfortunately the developer promising things that were not accurate or not true, not completing the conversion process in terms of fixing what they said they would fix, and then walking away from it.

They promise that we’re going to take care of this and that and, meanwhile, they leave the heating and cooling system in a state of disrepair. They don’t fix the windows. They don’t take care of the problems with the bricking on the outside of the building. They don’t fund the association properly. They don’t pay their own share of the assessments. I’ve had litigation involving that type of situation, and it’s a real problem.

Q. How long does it take for a new association to get on its feet in a condo conversion?
A
. Sometimes they learn through the school of hard knocks. There are classes that are taught on condo board operation. There are books to read. But normally it takes six months to a year to even get a handle on what’s going on.

One of the biggest problems in condo operation is the lack of continuity. Those people who serve on the board may burn out in a year or they may leave or they may sell their unit.

Being on the board is a political adventure as much as anything else. There are some people who are good at it and some people that aren’t. I don’t care if they’re doctors and lawyers and engineers, that doesn’t make them good board members of a condo if they don’t understand what their job duties are.

It’s got to be run like a business, and people don’t always understand that.

7 Condo Shopping Tips

1. Be sure to ask for a copy of the condo association’s rules and regulations before you buy. Some associations don’t allow pets or have other restrictions you may not like.
2. Call the management company or the condo board president to talk about the association.
3. Be sure to ask about parking.
4. Hire a lawyer to go over the condo documents and the sales agreement.
5. Ask about any special assessments recently passed by the condo board. If any are pending, find out who’s responsible for paying them, the seller or the buyer.
6. Don’t forget to budget for a monthly condo association fee in addition to your mortgage. The fee pays for security, general maintenance and other aspects of the association’s business.
7. Realize that failure to pay on time can subject you to liens and collections action.

© 2008, Detroit Free Press.
Distributed by McClatchy-Tribune Information Services

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