Valuable lessons for condo buyers

Question: Due to upcoming major repairs at our condominium, we will receive 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; condo prices have gone down and 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. 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 leave the keys when I go?

The mortgage holder is my 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 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. No one would be interested in buying with such a large assessment coming up.

Answer: 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, always get a copy of the current budget. At some condominium complexes, the management purposely keeps the monthly homeowner’s dues low to keep the owners happy. But that is a short-sighted 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. It was just a $3,500 assessment, but it still hurt.

To make matters worse, special assessments are not pro-rated according to how long you have owned the condo unit. Somebody who purchased a condo in your complex last year would have to pay the same $35,000 special assessment as somebody who has owned their unit for 10 years.

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 sell the condo at auction to try to recover the money it loaned to you.

I suggest that you contact the lender and ask if they might be willing to give you some relief rather than just walking away.

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 for many years.

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.

Steve Tytler is a licensed real estate broker and owner of Best Mortgage. You can e-mail him at features@heraldnet.com.