In today’s California condo market, the seller must not only prepare the unit for sale, but must be prepared with certain information about the homeowners association, prior to listing. Do you as a seller know how many owners live in the community? Are you familiar with the Conditions, Agreements and Restrictions (CC&R) of your association? What about upcoming assessments for planned maintenance work in common areas?
You’ve worked hard to repaint your unit, clean the carpets, and possibly upgrade the countertops in your kitchen and bathroom, 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 need to get an offer from a cash buyer? Unfortunately, many condo owners don’t realize that with more rental units, there is less chance of mortgage financing from the buyer. Many loan sources have higher criteria than required by the FNMA lending rules, and may require 70-75% occupancy by the owner before accepting the loan from their new buyer. At a minimum, 50% owner occupancy is required for FHA loans (this applies only if your building is FHA approved, by the way). In a 32-unit building, for example, 16 tenants will be too many. Lest you think otherwise, this situation is not unheard of and, in fact, exists in a very exclusive area where homeowners don’t want to leave their units after they’ve moved into a single-family home. It has presented many difficulties for those owners who wanted to sell. If you wait until you’re in escrow for the buyer/buyer’s lender to find out, you’ll have wasted a lot of time and the transaction may end up canceling. Wouldn’t it be wise to bring this up to the Board of Directors so that the general membership can review the rent management policy?
Property owners should not live in oblivion while allowing the proportion 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 owner has no other way out of their situation because no lender would provide financing and they couldn’t be a cash buyer. . found. An foreclosed unit in an association means a decrease in the owner’s debt collected and a possible increase for the remaining members, or at least a lack of contribution to normal operating costs. In addition, the market value of all units in that association may be affected if financing now becomes impossible to obtain, or if cash buyers make “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 renters, and how many vacant units. You can avoid wasted time by contacting your Board or property manager in advance to obtain this information.
Let’s say the owner occupancy rate is still okay, but there are defaulting owners on the building, possibly due to job loss, or units that are already in foreclosure. Did you know that if an association has more than 15% of its owners 30 days (or more) behind on association payments, lenders probably won’t make a loan until that number drops below 15%? In a smaller 30 unit building, that would take only 5 units. What if those particular owners are foreclosures held by a bank that doesn’t pay until the unit is sold, or owners who have vacated their units and are unavailable? Has your Board of Directors suggested a remedy to help current vendors in good standing? This is information that the seller must analyze before listing the property for him. Why wait until you’re in escrow and then find out the lender won’t go through with it because of this problem? Again, your Board of Directors (possibly the Treasurer) or your property manager’s representative should be able to provide you with this information quickly.
These are two of the biggest issues a seller 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? The ideal would be around 10%. Does your association have CC&Rs up to date within the last 5 years, or are you still operating with your original documents which are probably very 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 35lbs is allowed. Are you aware of any litigation within the association? This is a disclosure required of California sellers that lenders have a direct 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 together by a particular legal framework found in the California Civil Code that does not exist in a neighborhood other than an association. 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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