Vetting a condo finance. Do you have to hire an accountant? What should you look out for? It looks pretty straightforward.
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Years ago when I bought a condo, I read through the entire CC&Rs. (Might have dozed off several times…)There were a number of (random) pages missing. Management company responded, no problem, we’ll get those right out to you. Later they called back and said it was going to take longer than initially stated as they were going to have to go to the city to find the missing pages. Note that several units sold in close proximity in time to mine, but I was the only one to notice the missing pages.
So are all the pages included? Have there been any lawsuits? Any outstanding? Any settled? What do the reserve account balances look like? When does, say the roof, need to be replaced? Painting?
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It doesn’t look like they have reserve. They have a small deficit. Is that a big problem?
Well, I’m a novice at this, but I would think that the deficit would need to be resolved. Where do you think those dollars will come from? Does the size of the deficit concern you? (Or, more specifically, does the amount of the deficit divided by the number of units concern you?). Why is there a deficit?
These are questions I would have…
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Could be, after the condo in Surfside FL collapsed due to lack of maintenance bc lack of funds, many states require reserve studies, and then for condo associations to fund a reserve acccount.
Can cause banks to deny loan.
“
After Surfside, Fannie Mae and Freddie Mac made big moves in how they treat loans for condo-type properties. The government-sponsored enterprises updated their condominium and cooperative project eligibility standards for properties with five or more units. The new rules — which went into effect this past September, mandate a review of a property’s repair status before mortgage approval. This review covers ownership structure and composition, reserve funds, litigation, and insurance. The agencies’ updated eligibility standards also denote the difference between critical and routine repairs and the role special assessments and inspections play in review of maintenance concerns.
…
Homeowner associations (HOAs) are now scrambling to deal with items on their crumpled to-do lists, sometimes tripling or quadrupling fees that haven’t risen in decades.”
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Easy to check if the condo building is FHA compliant:
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The link doesn’t work.
Does that mean I can rely on mortgage company will do proper due diligence?
I would be wary of a condo without a reserve and with a deficit. My aunt and uncle live in a very large condo building that didn’t have a large enough reserve. When it came time to replace the roof, each unit (and there are probably close to 200 units) had to immediately come up with $25000-40000 depending; the amount was based on sq ft of the unit. Look at what the condo owner is responsible for. Also, check into the reviews for the management company.
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Something else, besides a house with stucco, I would not buy - a condo.
My hairstylist lives in a condo complex with multiple buildings. One of the buildings, not hers has major foundation problems. Coincidentally, my husband looked at it in the late '90s when there was concern, and he said they had a right to be concerned.
Another engineer did a report a few years ago, emphasizing it was a big problem.
Now they’re finally going to repair the foundation, and it’s going to be hundreds of thousands of dollars. So my hairstylist is going to have to shell out a lot of bucks for a problem that is not even in her building. The condo had no reserve.
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For some reason, that site doesn’t allow a direct link even though it comes up while doing a search and works just fine from there.
Try clicking on the embedded link here:
You have to figure out why the reserve funds are low. If there was a recent major scheduled repair, yes, the reserve would be depleted immediately after that. Does the HOA have a plan to build the reserve back up? Have the residents voted to increase the dues when it was necessary or do they bail out to keep the dues low and kick the maintenance can down the road?
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No, not necessarily.
If Fannie Mae or Freddie Mac’s lending standards aren’t met, a different lender could charge you more in interest, is my understanding.
Other buyers might pay cash and never be told that there may be expensive repairs expected, or a recent lawsuit, or higher insurance premiums coming. In my opinion, the buyer must ask.
There should be a way to get answers from the condo association-
How much are dues? Is there a reserve study? Is there plan for maintenance and replacement of common elements?
How much is insurance?
Is board functioning as expected- giving notice of meetings, budget, vote by owners on increasing dues? Etc.
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Besides the reserve and maintenance spend/upkeep, I’d also be concerned with the delinquency/default rate of other owners, especially if the number of owners/units are small. You are in a sense taking on the credit risk of your neighbors.
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This…and also look for any debts they are paying off…loans or whatever.
And for improvements that might necessitate a special assessment…new roof, driveway paving, etc.
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It cost our private road $180,000 to repave it. 13 houses. 
And we had saved NO money due to the idiot neighbors who didn’t want to and threatened to sue the rest of us if we dared ask for money each year.
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No reserves would be a big red flag to me.
If anything goes wrong the owners will have to shell out money for a special assessment for repairs.
I’d be asking about the history of the HOA fees, history of repairs, and wanting to see the budget and financial documents.
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Where would get that kind of information? The building is relatively new, 8 years old. Do you need an accountant to comb through the financial statement?
The condo board should have financial statements, by laws and any declarations available for a prospective buyer to review. It’s up to you if you think you’re able to review them yourself or if you want another set of eyes. When we were considering buying a condo, our realtor also knew which buildings had issues and which didn’t.
Don’t be lulled into a false sense of security just because the building is newer. We had a new complex in my town that part of the parking garage caved in and then window seals failed…for the entire building. Those owners had huge assessments and people trying to sell were taking giant losses.
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