Q&A: Why you should do your homework before buying a condo
Question: After years of renting, we’re looking to purchase a condominium, town home or cooperative in Los Angeles. Although most building facades don’t betray the internal problems, those complexes within our price range are in terrible disrepair. Many have filthy or non-functioning pools, old or peeling paint, rotting wood, broken light fixtures, cordoned-off elevators, damaged stairs, deferred balcony repairs and unsecured perimeters.
One association actually had a common-area plumbing disaster occur at the condo open house we were attending. While attendees were notably concerned, even offering to help, neighbors said that because it was a weekend no one from the association would show up to fix the problem.
When we ask real estate salespeople about these hidden problems, they say, “Don’t worry, it’s the association’s responsibility,” but once we buy there are no assurances the association will take care of these problems.
We also learned individual owners often end up paying for these common-area repairs out of their own pockets because associations refuse to pay for them. Some complexes we looked at had more than 35 units paying more than $405 a month plus several special assessments, but the buildings were shabby-looking and falling apart. Some associations are collecting tens of thousands of dollars every month in owner assessments with nothing to show for it. Where does that money go?
Answer: When evaluating the purchase of a home or property within a common interest development, it is imperative to follow the money. Before making your decision, request and review financial statements. If there are issues the seller or board can’t answer, then find another property.
Adequate upkeep, even for a 35-unit development charging as little as $405 a month, may be difficult to achieve. Depending on the type of maintenance, legal and administrative complexities plaguing a particular association, ongoing special assessments may be required.
However, even with a statutory mandate to impose assessments for additional funding, boards are reluctant to do so. Owners also want to keep monthly dues low. An elected board’s deferred decision-making approach could affect an association’s health, making this a political hotbed for homeownership.
Review board meeting minutes looking for documented long-term maintenance plans and goals, if any. You can also discover from a court’s public records whether the association has been a party to litigation in which it spent a lot of money either suing or defending lawsuits. These things take a lot of time to recover from.
To fully understand the effect of buying a particular property, obtain in advance disclosures made available to prospective purchasers. Under Civil Code section 4525, the titleholder shall provide certain documents to a prospective purchaser before execution of a real property sales contract. These documents are defined in Civil Code section 2985.
Part of the problem is a result of the statutory hierarchy with regards to association operations. Board directors may be concerned primarily with their own interests and those of their friends and supporters rather than the interests of the association. Directors elected on a platform of minimizing costs may try to keep owner payments low despite the ultimate result. That usually results in a reduction in the overall value of the development, which in turn affects all units.
Owners have to be proactive and involved. Look at the books and records on a regular basis. But if there is conscious mismanagement, even that might not be enough to protect your assets.
Zachary Levine, a 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.
