QBecause of upcoming major repairs at our condominium, we will be receiving an assessment of approximately $35,000 per unit.
The work indeed needs to be done because there are lots of structural problems in the complex. However the value just isn’t there; condominiums have not appreciated anywhere near as much as single-family homes here in Everett.
As much as I’d hate to ruin my excellent credit, I may have to walk away and let the condo go back to the mortgage lender, which is my credit union.
I’m wondering about both my rights and responsibilities in doing this. Am I required to give them any notice? Is there any communication between lender and borrower or do I simply ignore them and leave the keys when I go? Because it is the credit union where I have savings, CDs and IRAs, can they attach any of those monies? Can they attach any monies in other financial institutions, or will I be on a cash and money order basis for years to come?
I’ve talked to a very knowledgeable real estate broker and basically he said I’m in a pickle. I can’t sell because the siding has been removed showing the dry rot and other structural problems and no one would be interested in buying with such a large assessment coming up. I’d hate to walk away and ruin my credit, but I don’t see any alternative.
Name withheld by request
A Your problem illustrates a number of important issues when you buy a condominium. Unfortunately, my advice is too late to help you but this will help other readers who may be considering buying a condominium.
First, when you look at a condominium, ask to see a copy of the budget. At some condominium complexes, the management purposely keeps the monthly homeowner’s dues very low in order to keep the owners happy. But that is a very shortsighted approach because a properly run condominium will include a budget for reserves to cover future maintenance and repair costs.
When management keeps the monthly dues low, they typically are not performing preventative maintenance to reduce major repairs in the future. There are also predictable expenses such as replacing the roof every 15 years or so, for which money should be set aside. Without proper planning, the condo owners are eventually hit with a massive special assessment when the maintenance and repair bills finally come due. I have seen this happen many times. It even happened to me once, on one of the first condos that I ever bought. In my case, it was only a $3,500 special assessment, but it still hurt.
To make matters worse, special assessments are not prorated according to how long you have owned the condo unit. For example, if somebody purchased a condo in your complex last December, they will have to pay the same $35,000 special assessment as somebody who has owned their unit for the past 10 years. Needless to say, that is a very rude to shock to the new owners. I don’t know how long this maintenance problem has been known to the owners in your condo complex.
Which brings me to another suggestion for condo buyers: Talk to people who live in the complex. The real estate agent and sellers have a vested interest in putting the best possible spin on the condo. If you want to find out the “real story,” talk to people who live there now and have no reason to mislead you.
Finally, about “giving the condo back to the bank.” That is misnomer, because the bank never owned it in the first place. You borrowed the money from the bank (in your case, your credit union) to purchase the condo, but the title is in your name. If you fail to make the mortgage payments, the lender will foreclose and take the condo to sell at auction to recover the money it loaned to you. A foreclosure will severely damage your credit rating for years to come. I suggest that you contact the lender and ask if they might be willing to give you some relief rather than just walking away and refusing to make any more loan payments. But any way you look at it, if you go into foreclosure, or give the bank a “deed in lieu of foreclosure” your credit will be severely damaged.
I wish I had better news for you. Unfortunately, you are in a no-win situation. This should serve as a cautionary tale to all readers who are looking at condos. Make your purchase offer contingent on your review and approval of a professional building inspection, make sure that condo’s management is financially sound and talk to current owners to see if there are any hidden problems that may not be obvious to the building inspector or an evaluation of the condo’s books.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206. Fax questions to Tytler at 425-339-3435, or e-mail him at economy@heraldnet.com.
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