Q&A

Buyer of foreclosure wants major upgrade of dated development

Sometimes buyers think they can purchase a foreclosure, then force the other owners to fund a global upgrade

Question: I purchased a foreclosure for a great low price of around $74,000 in a planned unit development in the Rancho Mirage area a couple of years ago. There are still several units in foreclosure and pre-foreclosure stages. Our homeowner association dues are around $300 a month and we appear headed to a perfect storm consisting of a misguided board, an uninformed management company and incredibly apathetic homeowners, the majority of whom are elderly on fixed incomes. Board meetings are on Wednesdays at 4 p.m., I think to discourage owner attendance, but others say it's to accommodate elderly residents. Board priority entails keeping dues artificially low because the directors believe many owners can't afford an increase. While I don't know what everyone's personal finances are, there have been a lot of foreclosures and bank-owned sales here and in the vicinity. There's some money in the reserve account. With not enough money to make repairs that I think are necessary, the board has allowed streets to crumble, stucco and paint to deteriorate, landscaping hacked back by amateurs, little watering, absolutely no flowers, greenery that's no longer green, old out-of-date decrepit pool furniture and old worn roofs. At least 80 trees were removed from driveways. Others say there's nothing wrong with the streets, landscape, paint, stucco and pool furniture, and the trees were removed due to root problems. I believe because of the drab beige color and Southwestern motif, alleyways look like a storage facility. The development was built in 1985 and a lot of original owners are still here, but this was supposed to be a "resort," so I want a major up-to-date upgrade. We need to attract more hip buyers. Any way to convince the board to see the light or do we just watch this textbook example of a poorly run association crash and burn?

Answer: While you don't sound like an unsophisticated buyer, sometimes misguided buyers think they can purchase a low-balled foreclosure and then force all the other owners to fund a global "upgrade" to their new investment property.

Homeowner associations operate by majority rule. The board is vested with the difficult task of balancing owner interests, which not only include maintenance and common property upkeep, but also implementing fiscal, if not frugal, policy. Don't be too harsh on this board that is probably tap-dancing to the varying association interests as fast as it can. While you may have cause to challenge certain decisions, if your views are not in agreement with the majority, you'll have difficulty forcing your opinions on the rest of the owners.

What you call "artificially low" $300 monthly dues is actually a lot of money, especially for seniors on a fixed income, some of whom have lived there since the project was built in 1985. If there are already so many foreclosures, and pre-foreclosures down the pike, raising the dues merely for aesthetic concerns will cause a major calamity. Presently, some money in the reserves may be better than no money at all. Obviously, this association is in survival mode, and the board is astute enough to understand the owners' financial situation.

Investors and home buyers should investigate the overall state of an association prior to making an offer to purchase. Because an owner in the minority has limited ability to effect any quantifiable change in association operations, it should be the buyer's primary reason for performing ample due diligence.

Even if promises of a resort atmosphere were made prior to purchase, you were aware of what the grounds and amenities looked like when you bought. At that time you had the opportunity to request and review association financials, maintenance plans and reports.

Any association can attract hip buyers by spending a lot of money and imposing huge special assessments. But the effect of numerous foreclosures and vacancies will wreak havoc on sales, further stalling future maintenance and upgrades, as well as diminishing overall quality of life.

Even with adequate resources and financially secure owners swathed in boatloads of discretionary spending funds, labor-intensive landscapes in most associations are no longer cost effective or advisable. California's ongoing drought further highlights the need for climate-appropriate landscaping, which in Rancho Mirage, a desert, is unlikely to support lush greenery and fragile flowers.

This board appears to be doing the best it can with the aging population hand it has been dealt. The last thing you need is to start a war with your neighbors on your own doorstep.

When a deal seems too good to be true, it probably is. Buyers wanting to control their real property need to purchase land with an unrestricted title. When evaluating a potential purchase, even a below-market foreclosure sale, buyers of deed-restricted property need to consider the plans and priorities of the current association majority. If your investment requires upgrades, which in turn require a board's majority approval, to earn a return, then you may be waiting in the minority for a long time to see those projects completed.

Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or noexit@mindspring.com.

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