Hola BP. First, I'm new on this forum. If I'm posting in the wrong section of the site please let me know and I'll make the appropriate move. Brace yourself, this is crazy, crazy, loooong story.
I have a rather 'unique' situation, as my attorney describes it. In 2004 I purchased a 2bed, 1bath 950 sqft condo in a 6 unit building in Chicago. I lived there for 9 years and moved out last year. When the market crashed, so did the value of my condo and I could not refi or sell (I tried HAARP, my current lender wanted me to pay $1200 in cash upfront in fees, WITHOUT an approval, I refused and gave up after that). I put a tenant in, a young couple who is ALWAYS late on the rent but keeps the place immaculately clean and doesn't cause any trouble or noise.
Problems--there are a few: 1. the building is in disrepair and there is no HOA in place. None of us have paid HOA dues in years. 2. The gentleman that was 'managing' the building, paying common bills and overseeing simple repairs, has disappeared. He is not answering phone calls, voice messages, text messages, email or social media. I have no reason to believe he is hurt or dead. I will identify him as John. I don't know how any water, electric or gas bill is getting paid. The building is in disrepair and I'm concerned that very soon a 'final notice before disconnection' will pop up and it won't get paid. 3. Of the 6 units, 2 are in good standing with their lenders (i'm one of the two), 2 have been foreclosed and are in the bank's possession and 2 have lis pendens and will soon be in the bank's possession. I know this information because I completed the research on the county assessor site (and my attorney confirmed that I am correct). 4. I'm trying to foreclose on the bank owned units so that, per my attorney, I can put tenants in them and collect rents to get the building up to par. The problem is that there is no HOA and starting one has proven to be quite difficult--i can't reach the other owners or they claim they can't afford $25/month in dues. Yes, that's right, $25!
Why we haven't paid HOA dues: When I purchased in 2004, John volunteered to handle all the money and repairs. He did a great job until about 2007 when he decided to refuse any requests for itemizations of the funds. One unit decided to stop paying until John gave transparency of funds. He still didn't. Then another unit stopped paying and so on...however, all the bills were paid nothing serious went wrong..until now. I suppose it was easier for us all to ignore the situation. :(
Background: There is no insurance on the building. I can't even insure my unit because the building does not have insurance. Only one of the original owners is still living in the building; he has been in foreclosure for four years. I'm expecting the bank to take possession any minute. Four of the units have tenants--John illegally put tenants in one of the bank owned units, my unit has a tenant, John's unit has a tenant, the other unit in good standing has their family living in it. The final unit is bank owned and vacant.
Investing Opportunity: I want to purchase the 2 bank owned units (and eventually the two that are delinquent). By purchasing with hubby-to-be my attorney says I will have majority ownership in the HOA, can make necessary decisions, I can finally get the building up and running again\ by foreclosing on the other units for lack of assessment payment and use that money to make necessary repairs and pay common bills. BUT, I don't have the cash to purchase the two bank owned units. I don't know the reserve but I know they are not accepting anything less than $25k. I'm estimating $70-80k for the two units would appease the banks. The units don't need to be rehabbed, maybe just minor repairs. I know this building like the back of my hand because I lived there for 9 years and have owned it for 10 years. I know the neighborhood. I'm familiar with the layout of all the units as I've been in them all multiple times. Renting the units would be easy as I've never had a problem getting tenants.
Question: How do I protect this 'investment' before things get out of hand even more?? For obvious reasons I can't get a bank loan, it will need to be private or hard money. From where can I get the money to purchase the two foreclosed units? There has to be a way to do this, what angle am I not seeing? Is there a creative way around all these crazy deficits? is there someone I can call/write/meet for assistance or advice?
Is this not the strangest true story you've ever heard???
wow. I figure the reason no one wants to start an HOA is that if one does get started, there are going to have to be some special assessments for deferred maintenance. It isn't just going to be $25 per month if the building needs a new roof (for example) and every owner has to chip in $1000 (for example). The cost of not doing anything is greater but only for those still around to bear the cost.
I know you want to save the building. If you manage to buy the foreclosed units and manage to start your own HOA, the question I would ask (since you will be the majority stakeholder in the HOA) is what are all the costs to take care of the deferred maintenance and to catch up with all the bills and get the necessary insurance in place? You'll have to raise most of this as well. Probably, you won't get a regular mortgage anyway because a bank won't finance an un-insured condo with no HOA.
Sorry to be bringing up more problems to think about (probably this has crossed your mind already).
Hopefully some helpful folk on BP will come up with ideas and maybe even real solutions by partnering with you.
All the best.
@Wendy Noble I really appreciate your responding and trying to help! My attorney says I only need a small amount of assessment (hence the $25) to foreclose on the 'rented' units and use that rental money to fund the deferred maintenance around the building. He says the amount is irrelevant, the banks and other units won't pay it which makes them in technical default. And you're right, I definitely won't get a mortgage, which is why I'm trying to find private funds. I read the bylaws again and I think I have another, slower idea. I'm going to try it over the next 6 months and see what happens. Pray for a sista! haha. Thanks again.
You might be able to get a private investor to help if you are putting 25% in the deal. Your other problem, no insurance and you get sued what will you do?
I definitely will! It also sounds like your attorney has your back.
What about attending some local REI clubs? They're great for networking and meeting likeminded folk.
I don't want to give specific advice since I don't know Chicago and I don't invest in the US. Hopefully, there will be a few more responses from other BP colleagues.
whoa..not the first I've heard of a condo in this situation but I cannot offer any advice except to look at alternative properties that are more stable in respect to your investment even if you do own 1 of the units
By the way what area of Chicago is this building located at?
@Joe Gore Exactly! You're preaching to the choir and I think about this. This is why this is such a problem and why I'm really looking at all angles. Someone suggested I just 'let it go.' I'm very concerned about my credit rating dropping, obviously, which is why this isn't an option. And 25%, yes, I have no problem putting money in the deal.
@Wendy Noble Yes, my RE agent suggest REI clubs as well and gave me a local one that's supposed to be good. I can't go to next month's meeting bcause I will be in Dubai/SouthAfrica but I'll attend the Oct one.
@John Weidner Hey John, thanks for joining in! Really? Not the first? That makes me feel pretty good, and I'm not being sarcastic. Every time I tell this story, people are always like WHAT? You're never going to get out of this situation." Attorneys are more hopeful but expensive for advice and assistance. My atty is assisting me at a discounted price because he's done other work for me. This property is in Bronzeville.
@Kimberly Land this is quite a story you have, Kimberly. My initial thoughts as I was reading this was to acquire the two foreclosed units and gain majority stake, and I see you were already thinking along those lines. That's good. Starting an HOA is not difficult as long as everyone can agree and do their part, which is what your having problems with apparently... Your attorney is definitely advising you properly which is good, he/she sounds familiar or at least educated within this area. My concern for you is: is the juice worth the squeeze? I don't care too much about a unit not cash flowing, but what I do care about is having the right product. What kind of tenants want to stay in a building falling apart? Tenants that don't pay rent on time or at all is who! Make your life easier and unload this thing - sell it to the other person who is in good standing and let them worry about the BS. There are so many great deals in Chicagoland area, you'll spend less money and get more value if you just move on into another complex or buy a SFD. Seriously, walk away from this - lick your wounds and call it a day. A wise man once told me that "the definition of success is losing less money on your next deal." Good luck to you.
How did you make out with this situation?
Thanks for checking in! This condo adventure started off as nightmare and has ended beautifully! My attorney instructed me not to discuss the details of this process with anyone, so for months I did not really check BP as I had to devote a lot of time and energy to this project.
In a nutshell, I was able to successfully evict all the delinquent owners. It was a loooooong process as the judge went back and forth with Sheriff servers and process servers to ensure the owners had sufficient time and notice. And then there was 60-90 day stay to give them even MORE time to respond to the complaint. It was agonizing, all the waiting...
But then success, the judge granted the motion, we filed the eviction paperwork and BOOM! The Sheriff busted in, literally busted in the doors and evicted the non-paying owners. One of the units was purchased by a new owner and she is on the ball. She and I have been working closely together to restore the association and upgrade the building. This has been working very well and the building is already on it's way to restoration! I was also able to get my money back for hiring the attorney, fees, etc.
I learned sooooo much from this process. My credit has not only remained intact, but has increased to 760! My income has increased as well. I can honestly say it has made me a better investor; a year of hands-on education.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.