Scenes from a Recession....> "Ira goes to the Rogers Park area of Chicago to talk to some condo owners who are in a precarious situation—since the housing market crash, the developer who renovated and sold them their units has all but disappeared. He’s in foreclosure on half of their building’s units, and in the meantime, they have no one to pay for the upkeep and maintenance of the building they all bought into." Source/Read more.
Image Courtesy This Life Radio
10 comments:
This is something the condo classes never warned about and that people didn't see coming.... condo owners being stuck with the liabilities for units not paying their assessments.
In most associations, the situation is rare, and selling the place cures it since the new buyer is required to pay the back assessments coming in the door.
But when you have a half dozen or dozen or MORE units that are "in foreclosure" and the "owner" is a developer in BK, but the bank doesn't yet own the things, who do you collect from? And banks are deliberately stalling on foreclosing because that means that they will get stuck with an unsaleable asset AND the liabilities for it.
The South Loop is a disaster area because of this. Miami is an absolute horror show- dozens of 600 unit highrises with half the units not paying their bills.
I feel very sorry for people in the situation of these condo owners. It sure isn't going to make the units easier to sell. As it is, many lenders will lend only for a unit in an established association- 5 years old or more.
Any conversion or new development out since 2004 is probably a financially toxic building.
This is exactly why you should never by into a building that has NO other people vested into it... unless the seller owns the building free and clear.
I have seen this happen to many times.
We know the feeling only too well. We have developers that sold part of the units by lying and saying that renters were owners. They are also very hard to reach and ignore calls and emails. The only time they respond is if they think they will be receiving money. We were lied to and tricked. It seems a lot of these developers are foreign - Russian, Bosnian etc and are here to make a quick buck and then take off!
It's never been more important for a buyer to do thorough due diligence on a building.
First, get a REAL inspection before you even make the offer, once you find a place you're serious about. I don't mean the boilerplate inspection you always get for the lender, but the kind you have to spend $1000 for. The kind where they look at every brick and wire and pipe and window sash and every other component of the whole building, not just your unit.
Then, go to county records- you can do this on line- and spend .50 a document to download the loan history of every unit in the building. You could end up spending $100 or more to find out what your neighbors owe and who has option ARM loans and 2nd mortgages and 3rd mortgages, and for how much. That is ALL public info, and you have a right to know it all and you need to know it all. You need to know just how deep in your neighbors are, and if every other person in the building is overextended, maybe you want to back away.
Then, get the financials on the building. You need to know all that-the reserve fund, any work coming due, any liens, any lawsuits, who has authority over expenditures, how much money is allocated for what purpose, how many assessment arrears.
Get as much info as you can before you make the offer. And if you can't spend the money on this stuff, then maybe you can't really front the money to buy the place. Personally, I'd be really leery of a new conversion or new construction with less than 80% of the units owner-occupied. Lenders now want to see at least 70% of the units owner-occupied. You really ought to go for 80%. And for Godsakes don't ever waive inspection just because it's a new building or rehab- those have some of the worst problems.
Persons buying a home, no matter the type, should investigate the underlying condition of the property. In the case of a common interest community, this should include the health of the association. A buyer can and should ask to see the financials, review board minutes, and evaluate how many of the owners live in the property and are current on assessments. The problems identified in the TAL story are not unique to Rogers Park.
It should also be pointed out that the property in the story was a conversion comprised of all new owners. In a conversion with all new owners, there is no association history to review. The condition of the property may also be hard to evaluate, since the early buyers have to accept on faith that the developer will deliver the completed project as promised.
Lots of conversions in Rogers Park were delivered successfully, as they have been across the city. And I cringe at the notion that developers from Eastern Europe are somehow suspect. In the story, a questions was posed to me about whether SOME developers had left lenders and buyers in the lurch by leaving the country. Some had. But lots of others completed projects and others failed simply because the economy tanked. The TAL captured the experience of one property, by people should not over generalize from one story.
It remains to be seen what the city will learn from this experience. At present, a City Council Condo Conversion Task Force has developed a set of recommendations that would strengthen protections for renters and condo buyers. The Task Force was formed 2 years ago, before the last aldermanic election and at the height of the conversion craze. Lakeside participated in many of the Task Force meetings and made numerous recommendations, some of which have been included in the near-final recommendations of the Task Force. On April 17, the Task Force should convene and hopefully, produce a set of recommendations, which can be brought to the City Council for adoption in ordinance form. For more information on this, please contact Lakeside CDC at (773) 381-5253 or email condo@lakesidecdc.org.
Nobody should have to accept on faith that the building has a sound foundation and is NOT built "on dirt, ha ha, you bought place built on dirt." I feel sorry for the condo owners but come on, did they think they were saving money in avoiding an independent inspection? That story sent chills down my back.
- PEACE -
Brian, thanks for clarifying your TAL comments and intent.
Brian - Well, you may cringe but myself and lots of our friends have had many problems with foreign developers - ours were Russian and have essentially disappeared, after making promises of quality and finishing touches that have never appeared. We heard excuse after excuse until they finally just stopped answering our calls or our emails. Make sure the developer has a track record of success and is tied to this country.
The standard inspection required by lenders isn't thorough enough, and the Condo Disclosure the seller must deliver is, in my view, a joke. I was given a disclosure for one place I made a (rejected) offer on that checked off everything as OK, but I learned later that the building is an absolute fright.
Your usual "boilerplate" inspection, always required for a loan, will usually cost $100-$400 and in normal times this inspection is usually sufficient. But these have not been normal times.
The unwinding of the credit bubble has laid bare not only the incredible corruption in lending practices, but also the laxity and corruption of municipal officials in granting permits for construction and occupancy. So much really bad construction was done in the past ten years, that we might as well have not have had a city buildings dept for all the oversight contractors and developers have been subjected to. One building of $1 Million condos in Bucktown had to be evacuated because it was on the verge of collapse- the owners called in an independent consulting firm when they saw the walls separating from the floors. Plans and buildings were just rubber-stamped through. The horror stories of bad construction are endless, here and elsewhere.
The state laws governing building contractors are very lax and protective of people in the industry. You don't know how rigged the situation is against you until you are in the situation unprecedented numbers of people are in now, of having a dwelling too shoddy and unsafe to continue living in, that cannot be sold, and the builder/developer has taken the LLC out of business and set up under another corporate name. You could be tied up in the courts for years.
North Coast, that's just one more reason why I sinserely doubt I'll ever own a home or condo.
I heard an interview on the public radio yesterday that made me feel a little hopeful fo the future. As I recall, the individual being interviewed was an economic historian, or somehting like that. He noted that out of every great financial crisis comes some major shifts in thought. He sighted the unprecedented growth of government after the depression as an example. Prior to the depression, the government was relatively small and people thought that was the way it should be; it was "normal." After the depression, the goverment grew by leaps and bounds and the people felt it was necessary; the new "normal." He suggested that after this housing bubble burst and the devastating effect it has had on so many people, that we as a nation may come to change what we consider to be the American Dream from one of owning your own home to one of feeling safe in your own home - financially as well as physically. Hence, he says, we may see a rise in rentals, a shift in the public perspective of renting a home from one of temporary-therefore-not-actively-involved to one of possible-permanance-therefore-active-involvement. This will show up in landlords allowing tenents to make lasting choices concerning their environments such as what kind of kitchen they want or redoing the bathroom.
I suppose I have to take a wait and see attitude, but I'm sure hoping he's correct. It would be nice if the landlords did annual or semi-annual refurbishing jobs on the apartments rather than wait until the current tenent moves out. Perhaps, after things settle down from all this economic mess, more landlords will come to realize the potential boon this crisis can be for them and step up to the plate to offer security as well as pride of involved rentalship to their tenents. Ah, a girl can dream . . .
- PEACE -
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