Beware of Association Finances Before Buying!

When buying a condominium, or a home that is part of any association with regular monthly assessments, buyers have a lot to worry about these days.  It’s not uncommon for a buyer to find a condo or home in an association for an amazing deal.  But as a buyer, you can’t just look at the unit you’re buying.

Sure, it’s an amazing deal.  Sure it’s in great shape, and just needs a little bit of touch up.  Sure, the monthly assessment is low and there is no special assessment pending; or, there is a special assessment, but the seller will pay it off.  And hey, it’s so cheap you can buy it in cash, you don’t even want to get a loan.  But beware, are you buying someone else’s headache?

During the course of your transaction, your attorney should obtain a Section 22.1 Disclosure for you.  She should also get you the assocation’s budget.  Look at these documents carefully.  Is the association in the red?  Does it appear that a lot of units aren’t paying assessments?  Even though your unit may be paid in full by the time you close, how many other units are not paying assessments?  Are there many units in foreclosure?  Has the association spent down their reserves, or do they still have enough money left for a rainy day?

This last year, many a real estate transaction has gone south because the buyer decided that the association was a risky proposition, even though the home they were purchasing was perfect in every other way.  Sad stories abound — about the association who had to keep the lights off in the hallways during the day because they could barely pay the electric bill, or the associations that had to keep amenities such as pools and clubhouses closed because they could no longer afford the maintenance.  In some instances, associations have had to issue special assessments just to keep up with regular monthly bills. 

If you are financing the purchase, your lender should look into the association’s financial health for you.  Loan are often (but not always) turned down because the bank doesn’t want to lend money to buy a condominium in a risky association.  Whether or not you are getting a loan, but especially if you are buying all cash, do your research!  You don’t want to buy yourself a new problem.