In today’s California condominium market, the seller must not only prepare the unit for sale, but must also be prepared with some HOA information prior to listing. Do you as a seller know how many owners live in the community? Are you familiar with your association’s Conditions, Covenants and Restrictions (CC&R)? What about upcoming assessments for planned maintenance work in common areas?
You’ve worked hard to repaint your unit, clean your carpets, and possibly upgrade your kitchen and bathroom countertops, and you’re ready for buyers to take a look. Then he maybe he gets an offer from a motivated and excited buyer and opens escrow and plans to close in 30 days. But wait, have you considered other issues that could affect your sale?
For example, did you know that having an owner-occupancy rate of less than 50% means you may have to get an offer from a cash buyer? Unfortunately, many condo owners don’t realize that with a greater number of rental units, there is a lesser likelihood of mortgage financing by the buyer. Many lending sources have higher criteria than required by FNMA lending rules, and may require 70-75% owner occupancy before accepting your new buyer’s loan. At a minimum, 50% owner occupancy is required for FHA loans (by the way, this applies only if your building is FHA approved). In a 32-unit building, for example, 16 tenants will be too many. Lest you think otherwise, this situation is not unheard of and actually exists in a very exclusive area where homeowners do not want to leave their units after they have moved into a single family home. It has presented many difficulties for those owners who wanted to sell. If you wait until you are in escrow for the buyer/buyer’s lender to find out, you will have wasted a lot of time and the transaction may end up being cancelled. Wouldn’t it be wise to bring this issue up to the Board of Directors so that the general membership can review the rental management policy?
Property owners should not live in oblivion as they allow the ratio of homeowners in their association to decline year after year. This could mean the difference between selling a unit while you still have equity or as a successful short sale, or forcing a foreclosure because the homeowner has no other way out of their situation because no lender would provide financing and they couldn’t be a cash buyer. . found. A foreclosed unit in an association means a decrease in collected owner debt and a possible increase for remaining members, or at least a lack of contribution to normal operating costs. Additionally, the market value of all units in that association may be affected if financing now becomes impossible, or if cash buyers submit “low” offers to a desperate seller. Typically, a lender’s HOA Certification submitted to the Board or property manager may ask how many owners, how many tenants, and how many vacant units. You can avoid wasting time by contacting your Board or property manager beforehand for this information.
Let’s say the owner occupancy rate is still OK, but there are delinquent owners in the building, possibly due to job loss, or units already in foreclosure. Did you know that if an association has more than 15% of its homeowners 30 days (or more) behind on association payments, lenders probably won’t make a loan until that number drops to less than 15%? In a smaller 30 unit building, that would take just 5 units. What if those particular owners are foreclosures held by a bank that won’t pay until the unit is sold, or owners who have abandoned their units and are unavailable? Has your Board of Directors suggested a remedy to help current sellers in good standing? This is information that the seller must analyze before listing his property. Why wait until you’re in escrow and then find out the lender won’t go through with this problem? Again, your Board of Directors (possibly the Treasurer) or your property manager’s representative should be able to get you this information quickly.
These are two of the biggest issues a vendor can face, but others may include whether or not your association has a reserves study: how much money is set aside in your annual budget for reserves? Ideally it would be around 10%. Does your association have updated CC&Rs within the last 5 years, or are you still operating with your original documents which are probably way out of date with current laws? What is the pet policy in your building? Many buyers have pets and will need to know in advance what to expect, ie two dogs may not be allowed, but one dog under 35 pounds is allowed. Are you aware of any litigation within the association? This is a required disclosure to sellers in California where lenders have a vested interest in the risk of lending there, depending on the particular issue.
In a community of owners, the concept of “the greater good” is very close to the surface. Members of an HOA are bound by a particular legal framework found in the California Civil Code that does not exist in a non-association neighborhood. Condo living was and is really for owners who plan to live there, and it may not work well for long-term absentee owners, because now more than ever, the transfer of these units is largely controlled for the first time. for mortgage loans. criteria.
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