Dissolving HOA after purchasing up entire building?

11 Replies

Hi all -

I own a condo in a 2 unit building here in Chicago. I have a potential opportunity to buy out my neighbor's unit, which would then give me full ownership of the building. My plan is to purchase the unit with cash first, and then refinance 6 months down the road so I can pull 75% LTV off of the appraised value. However, my lender said that in order to refinance to a conventional loan... I would need to first dissolve the HOA after buying my neighbor's unit.

Has anyone gone through this process first?  What are the steps involved and the typical timeline?  And how much does a lawyer typically charge to help with this process?

Also - does dissolving the HOA preclude me from selling each unit individually in the future? If so, would I just need to re-create an HOA and then sell each unit?

Thanks for your help.

HOA mostly sorts out basic rules and how things will be paid for. If you dissolve it and want to sell the other unit, you're going to need to have some sort of agreement on how to pay common bills (like repainting the outsides).

Think I'd just leave the HOA, but modify it on how to decide what work needs to be done and when and who/how to pay for it and how much.

Originally posted by @Steve Morris :

HOA mostly sorts out basic rules and how things will be paid for. If you dissolve it and want to sell the other unit, you're going to need to have some sort of agreement on how to pay common bills (like repainting the outsides).

Think I'd just leave the HOA, but modify it on how to decide what work needs to be done and when and who/how to pay for it and how much.

The issue is that my lender is telling me I can't refinance to a conventional investment loan without dissolving the HOA first. I don't mind keeping the HOA even if I own both units - but the issue is with the refinance.

 

If you purchase the other unit, you still have two distinct parcel IDs, two titles, two tax bills, etc, but it sounds like (or your lender is interpreting) that you want to refinance the whole building, which I've never heard of with a conventional mortgage.

You can combine the properties to own the single building with two households (one parcel, title, etc) to refinance the whole building, but then you do lose the option to sell off one unit later (though you could rent it just fine).

If you are just wanting to refinance the unit you purchase in cash, I don't see why the lender would want any changes to the HOA. I think legally an HOA must exist for multiple units in a single building. Perhaps there's something about HOA being wholly controlled by a single person (because there are rules around having a 'board' and maybe you can't have a board of one person). I wonder if that doesn't apply for third-party management companies, which might be worth exploring, or seeing if the lender would accept that.

Originally posted by @Ron S. :

If you purchase the other unit, you still have two distinct parcel IDs, two titles, two tax bills, etc, but it sounds like (or your lender is interpreting) that you want to refinance the whole building, which I've never heard of with a conventional mortgage.

You can combine the properties to own the single building with two households (one parcel, title, etc) to refinance the whole building, but then you do lose the option to sell off one unit later (though you could rent it just fine).

If you are just wanting to refinance the unit you purchase in cash, I don't see why the lender would want any changes to the HOA. I think legally an HOA must exist for multiple units in a single building. Perhaps there's something about HOA being wholly controlled by a single person (because there are rules around having a 'board' and maybe you can't have a board of one person). I wonder if that doesn't apply for third-party management companies, which might be worth exploring, or seeing if the lender would accept that.

this is my thinking as well.  I do not want to refinance the whole building.  I have a loan on the current unit that I own, and I'd want to refinance the 2nd unit after I buy it with cash.

I'll follow up with my lender. I think it may be because of the HOA controlled by the single person? But I'll see if there are ways around this. Seems like it should be a solvable thing.

 

Deconverting is easy if you own both units. Reconverting it back to 2 condos will be costly and not an easy task but likely doable. 

Originally posted by @Mitchell J. :

Hi all -

I own a condo in a 2 unit building here in Chicago. I have a potential opportunity to buy out my neighbor's unit, which would then give me full ownership of the building. My plan is to purchase the unit with cash first, and then refinance 6 months down the road so I can pull 75% LTV off of the appraised value. However, my lender said that in order to refinance to a conventional loan... I would need to first dissolve the HOA after buying my neighbor's unit.

Has anyone gone through this process first?  What are the steps involved and the typical timeline?  And how much does a lawyer typically charge to help with this process?

Also - does dissolving the HOA preclude me from selling each unit individually in the future? If so, would I just need to re-create an HOA and then sell each unit?

Thanks for your help.

While I play a lawyer on TV don't take this as legal advice. Some of what I'm going to say is a brilliant grasp of the obvious, but sometimes the best solutions are obvious. The only reason for an HOA is so that there's an agreement among owners of a building on the maintenance, care, upkeep, upgrades,.... of common parts of the property. Since you will own the entire building dissolving there's nothing to prevent you from dissolving the HOA. Who are you going to argue with, yourself? Who's a lawyer going to argue with when you dissolve the HOA, you? It should cost you next to nothing to dissolve an agreement between yourself. Sounds silly- I know- We did it when we purchased 2 condos and converted it to a single-family. The difference between our situation and yours was converting to one PIN.

Now dealing with when selling the individual units in the future- Again- who are you going to argue with- yourself? Part of the sale should include establishing the HOA for the new owners of the units. As the sole owner, you'll have the information to show what it costs to maintain the common grounds..... So you should be able to establish the HOA fees required to maintain. Regarding the bank finding out that an HOA is in place after the fact- Who's going to tell them? Not me.

 

@Mitchell J. this is actually a pretty simple question, but you want to go straight to a real estate attorney. You also want to make sure your lender really knows the ins and outs here. My mail lender @Joshua Jones has done condo conversions pre crash, and has undoubtedly been involved in deconversions as the lender as well. I would imagine he can weigh in here. 

Some of the more wild and woolly aldermen in Chicago want (have passed?) to limit converting two-flats into single-family homes. While this is not your situation, it might limit your options after you dissolve a homeowners association and decide to get out of the rental business.

What, exactly, would having a pocket homeowners association prevent you from doing? As others have noted, they are fairly easy to dissolve, but expensive to create later.

Your problem, as you stated, is your bank, not you. Get a new bank, or perhaps get your current bank to make two loans to you. The terms for the rental unit might be different, but that should be do-able. Think of it as two units, two loans, not one owner, one loan.

@Mitchell J. - Reach out to Gary Davidson (Castle Law) He should be able to help you. Gary won't charge you anything to chat. You can give him my reference. I tried to put his number looks like I cannot do that. DM me will be happy to send you him email and number hope that helps.