Buyers beware: Condo associations may have pitfalls

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Updated: February 24, 2012 2:08PM

Buying a condominium isn’t as easy as it used to be, as slow markets and economic woes have hit this market segment particularly hard.

The good news for purchasers is that high inventories have given way to aggressive pricing on many attached-home listings, with some truly remarkable deals to be had out there. The bad news is that it can often be tough to get financing for some of those great buys. Even if a buyer is well-qualified, a condo building’s association may not be.

Many condo associations are feeling the pinch of foreclosures, short sales and delinquent assessments, even with the most responsible financial management. Lenders thereby have increased risk and have tightened lending parameters accordingly, imposing more stringent guidelines on both the buyer and the condo association. Securing a loan on a building with less-than-ideal financials may even be impossible, unless you have a very large down payment.

Cindy Smolin of Wells Fargo in Northbrook has seen a lot of frustrated, would-be condo buyers walk into her office in search of a loan. She can often help them sort things out. The bottom line is that the qualifications of the building concern lenders today just as much as the buyer’s qualifications.

Smolin said, “With proper advance planning, I can usually help a buyer determine if there may be problems with getting a loan on a unit in a specific condo building before they spend time and money pursuing a purchase.”

Smolin suggests those buyers and their agents request, prior to making an offer, that the condo association complete a Homeowners’ Association Certification (available through Wells Fargo and other lenders). Among other things, the form confirms the number of units in the building, how many are under contract or have sold recently, and how many are delinquent. It also requests details on the financial operations and solvency of the association as a whole.

“Once I have that form, I can try to assess upfront if there are any potential pitfalls pertaining to the building’s loan worthiness. I can also suggest what might be done to best address these concerns for a lender,” said Smolin. “Sometimes we can get exceptions.”

A seller or their condo board may require that a contract be signed before they complete the above-noted form. There may even be a charge. In such cases, Smolin advises writing a contingency into the purchase contract that requires the seller to get the condo questionnaire completed before the buyer orders an appraisal. If there is a charge at all, form-completion costs are typically around $150 and the purchaser doesn’t pay unnecessarily for an appraisal of a condo in a building that won’t pass muster with his lender.

“When we can identify potential problems ahead of time, we can better prepare the customers for them, along with possible outcomes and solutions,” said Smolin.

Smolin agrees there are still no absolute guarantees of smooth sailing in what can sometimes be a very complex lending environment, but she knows from experience that a well-researched and informed approach limits the surprises.

Julie Morse is a licensed Realtor.