A buyer and their real estate team need to conduct a lot of due diligence when shopping for a condo, including helping them understand the financial and legal implications of condo ownership.
Attorneys play a crucial role in this process by reviewing condo documents, assessing financial risks, and negotiating terms that safeguard buyers.
Here are four key ways attorneys help ensure condo documents are thoroughly understood and addressed.
Review the Meeting Minutes and Budgets
Attorneys carefully read through the minutes from the condo association’s meetings to understand upcoming projects and how they are budgeted.
They determine whether the association has enough funds in its reserves to cover these projects or if special assessments or loans will be required. By understanding how the association plans to pay for these projects, attorneys help buyers prepare for any upcoming costs.
Analyze the Reserves and Financial Health
It’s critical to review the budgets and reserve funds of the condo association to assess their financial health.
This includes checking if they are meeting their annual budget and whether they are putting aside sufficient funds for future repairs. In a building with 60 units, for example, even though the cost of major repairs is split among all the owners, the expense can still be significant. If a roof replacement costs $300,000, each owner is responsible for $5,000, which still amounts to a sizable payment.
It’s essential that the association has enough reserves to cover these costs without needing to issue a special assessment, which could otherwise become a large unexpected expense for the owners.
Evaluate Special Assessments and Potential Future Costs
As mentioned above, a key part of the attorney’s role is to assess whether a condo building has any upcoming or potential special assessments.
For instance, if the association is planning major repairs but lacks the funds to cover the costs, a special assessment could be required, meaning each unit owner will have to contribute additional money. Attorneys can request a holdback of funds from the seller at closing, which can be used to cover any special assessments that arise shortly after the buyer takes ownership.
Negotiate for Fair Contributions and Holdbacks
Attorneys can protect clients from unexpected costs by reviewing upcoming projects and asking for a financial holdback.
For example: a buyer purchasing a townhome in a building where the minutes showed the completion of a roof project and upcoming plans for repaving. The townhome owners are responsible for 40% of the special assessment, and it’s clear more projects are on the horizon.
To mitigate the risk of surprise costs, an attorney would request a holdback of funds for 12 to 18 months. If no special assessment occurred, the money would return to the seller. However, if one did arise, the funds would cover the buyers’ portion.
With this approach, the seller and buyer are held accountable for the property’s maintenance during their respective ownership periods, and any necessary costs are fairly allocated.
There may be other issues apparent from reading the minutes. For example, litigation that may have arisen or is on the horizon, unit owners who are in foreclosure and not paying their share of expenses, changes that may be under consideration regarding the rules and regulations or bylaws such as changes in rights to rent units or increases in monthly dues. It is critical for the attorney to review the minutes to understand changes contemplated by the board or risks the buyer may be taking on.
By carefully reviewing condo documents and negotiating terms that protect their clients, attorneys help buyers fully understand the financial commitments that come with owning a condo. These steps minimize the risk of unexpected costs and provide peace of mind for buyers entering a condo community.
The Minchella & Associates Difference
With over 40 years of experience in Illinois real estate law, Erica Minchella has represented thousands of home sellers and buyers, landlords, and commercial and investment property owners. For more information, schedule a consultation today.
