As attorneys that practice Community Association Law and represent Community Associations and Condominium Associations all over Pennsylvania, we are frequently asked, “What would you look for if you were buying a home in a Community Association or Condominium Association?” The following is a brief overview of what buyers should be looking for when considering a home in an association.
Declaration of Covenants, Conditions & Restrictions (CC&Rs)
Prior to signing on the dotted line, you should examine the Declaration/CC&Rs for the community to make sure that as a potential community resident you can actually live with the limitations imposed on all owners in the community. For example, many association communities prohibit sheds, even for a single home on an acre of land. If you simply must have a shed, then buying a home in an association community that prohibits sheds is obviously not the best choice for you. By carefully reviewing the governing documents for the community and asking questions prior to the purchase, a buyer will be able to determine whether living in a particular community is actually the right choice for them.
Prior to signing the agreement of sale, ask for and review a copy of the association’s budget. Look at the association’s outstanding debts and liabilities, as well as the percentage of owners that are not current on assessments. If the majority of owners are behind, this may signal financial issues for the association. This may also have a negative impact on a buyer’s ability to obtain a loan to purchase a home in a condominium association. Fannie Mae, Freddie Mac and the Federal Housing Administration purchase and/or insure a majority of mortgages and place a cap on assessment delinquencies for condominiums.
Make sure that adequate reserve funds are set aside for maintenance of common areas in order to fund a large-scale project, like a swimming pool repair or a road repaving project (for private roads). If the reserve funds are insufficient, owners may be issued a special assessment to pay for the project. Buyers should therefore ask for a breakdown of the reserve funds as well as expected upcoming capital expenditures.
If a buyer wishes to live in the unit and not use it as a rental/investment property, the buyer should examine the percentage of units that are owner-occupied versus how many are leased. A high number of rental properties in the community could mean that a low level of owner involvement is present in the community. A high level of rentals in a community can have a negative impact on a buyer’s ability to obtain a mortgage to purchase a home in a condominium association. Fannie Mae, Freddie Mac and the Federal Housing Administration set a minimum owner occupancy rate for condominiums.
Conversely, if a buyer is looking to use the unit as a rental/investment property, the buyer should see if there are rental restrictions present in the community. The buyer should also see if the maximum thresholds for rental/investment units have been reached in a condominium community prior to signing the agreement of sale.
Ask for a copy of the “Policy Declarations” for the association’s insurance policy/policies to ensure that coverage is adequate and current. Coverage should include but not be limited to general liability coverage, director & officer liability coverage, environmental impairment coverage, employee dishonesty coverage and/or sinkhole coverage for the common elements.