Most that purchase a condominium will need a real estate loan to complete the sale. The lenders will have requirements concerning the “health” of the HOA and the property itself. If the HOA does not meet lender requirements, there is probably a good chance the loan will be denied.

1. HOA needs to set a side 10% of revenue to the reserve fund. Every HOA should have reserve fund in an amount to be able to cover major expenses on an on going basis. If a lender determines the reserve fund is not properly funded, then it can be concluded that when a major expense arrives, there will not be enough to pay the cost. The HOA would then have to raise the HOA dues or create a special assessment to all property owners. An improper funded reserve may cause the lender to deny the loan request.
2. Lenders will also check the percentage of occupants that are late in paying their HOA dues. Some lenders will not allow that there is more than 15% late.
3. Lenders may also check to make sure the association carries a correct amount of Insurance.
4. Many lenders require that the 51% of condo complex be occupied by owner occupants.
5. Most lenders will require that the HOA submit a lender certification. It is usually a 1 page documents that ask a host of questions concerning the condo complex. Some of the questions may be:
   1. Is the complex a conversion? There may be building issues.
   2. Is the HOA currently subject to any pending law suits or outstanding penalties, Attorneys’ fees, mechanic’s liens or other charges?
   3. What is the present amount of the HOA reserve? And are they sufficient to meet the HOA needs.
   4. How many owners are 1 month or more delinquent on their HOA dues?

These are just an example of what the lender certification may request. The certification may have 20 or 25 questions. All lender certifications are a little different and may ask different questions or the same question in a different way. The lenders just want to assure themselves that they are making a loan on a property with a stable HOA and condo unit values.

Here is some more to think about when purchasing a Condominium.

1. When you first arrive at the property and you see a lot of for sale signs out front, that could be a red flag. The first question is why and what’s wrong with this place. There could be a number of reasons that could affect your desire to buy. It could just mean that these sellers are moving up to a larger property, they are moving to another city or another part of town. Hopefully they are not moving because of the undesirability of the property.
2. Ask your agent to give you a report that shows how many of the units are in foreclosure, how many are bank owned properties, and how many are for sale that requires a short sale. Too many of the above can and probably will effect the future values in the complex including the one you might purchase.
3. Many potential buyers of condo units always seem to complain about the condo dues. And sometimes they have a justification for doing so. Your agent should be able to tell you if the condo dues on a particular property are high, low or just about right. If a HOA is properly run, these dues do a lot for you. First they take care of expenses you don’t have to worry about individually. Things like repairing a roof, doing major plumbing repairs and landscaping. And if all of theses things are taken care of in a timely manner, it helps maintain the value of your property and enhances the ability for your unit to appreciate.
4. One of the best ways to get a feel for the health of the HOA and the complex is to walk around and try and find some owners. Be direct and ask them what’s going on here, are they happy here, how long they have lived here, is the HOA or management company responsive to their requests, do they know of any lawsuits pending, any potential assessments, any problem neighbors, are their parking problems, drainage problems, and anything you can think of.. You’ll be surprised on what you can find out.

So now you have decided to purchase a San Diego Condo. Are there things about the complex and the HOA (homeowner owner association) that you should pay particular attention too? You can bet there are. Your main interest should be the “health of the HOA”.

1. First impressions count. When you first arrive at the complex, just look around. Look at the building (s), look at the landscaping, look at the amenities (pool, tennis court etc.), and look at the common areas. Are they well maintained? Does there look like there is a lot of deferred maintenance showing? That could be your first red flag. If there are not immediate plans by the HOA to remedy that situation, then the HOA could be in financial trouble.
2. In California when you purchase a condo and use CAR contracts (California Association of Realtors) the buyer has approximate 17 days to review all documents and disclosures provided to the buyer by the seller. One group of documents are the HOA documents. Essentially they provide the buyer with a financial picture of the HOA association. These are extremely important documents. Read them and understand them. If you don’t understand them, get help. Your agent may be able to provide limited advise (most are not attorneys), but if necessary consult with a real estate attorney. It may be an expense, but it is well spent.
3. Unfortunately HOA associations or the management company can be very lax in getting these HOA documents to you in a timely manner. Remember the approving the HOA documents is a contingency in the purchase agreement. If you get them late into escrow and feel hurried to approve them, don’t blindly do it. Make sure you understand them. The contingency period can be extended in order for you to fully understand the HOA documents.

Buying a Condominium is a lifestyle. It can seem like a perfect place to live and for millions that has proven to be the case. But for some it is not their cup of tea. There are a lot of benefits to Condo living, but their can be some drawbacks. There is a lot more to say about condos in future postings.