Huge assessment likely to crush most owners

9 Replies

I own and rent out a unit in a 11-unit condominium.  There is a sewage problem that has been quoted at 250k.  The assessment breaks down to 20k/unit.  My unit is worth 120k.  I seriously doubt all of the owners will pay.  What are my options?

Find a good real estate attorney who is also an experienced litigator and prepare to sue them.It's going to get expensive so be prepared for a long haul financially.

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250k is... Very extreme for a sewer issue. Especially since most townships are responsible for the lines in the street. I don't understand how it could cost that much to dig down and find and fix the problem from the street to the complex. Furthermore you need to look at your bi-laws and see what you are responsible for.

It is a good cautionary tale, Jeremy. I agree with the above comments about verifying and getting additional professional opinions/quotes.

Three quick notes if this is an unavoidable cost: 

(1) Explore financing (a bank or even state housing agency may have a loan option or program for the association or individuals); this occurred at an association I had a rental at, so it was big per unit but ended up only 150/mo over 15 years and, as a rental, tax deductible (check up on capital improvement and special assessment and depreciation with a CPA). Our terms were pretty good and the assessments were required to be paid off on sale as well. The board should be exploring this financing option with lenders in your area (whatever the price may be).

(2) Scale issues. One benefit of condos is that you, ideally, share the capital costs of a roof or parking lot with a hundred friends (read other unit owners). So one percent is not so bad. Here you have an 11 unit complex, so you bit off almost 10% (yikes). So folks may want to aim for associations with 50-100 (or more) to get the economy of scale which can be helpful.. It cuts the other way on the small associations.

(3) Selling? If possible, this may be worth a look. With full disclosure and a 20K discount, perhaps you just sell if you have the equity to sell at a discount. Maybe consider an exit strategy and even take the loss and write it off and move on to a better investment, as this may have continuing costs with such small complex (see #2 above). And if not all will pay, it could leave the association in more financial and legal peril. But on the exit, much will depend on your basis, circumstances, market, and if a buyer would be interested. With very little equity, I have heard of people doing a strategic default in such situations but that is last resort and you would want to seek professional advice and study all repurcussions and seek all other alternatives first.

Best of luck.

@Jeremy Barth

It usually depends on state law but your board of directors may be required to ratify the special assessment budget (meaning, the owners should be given an opportunity to reject the budget). This clause if not contained in your governing documents could be found in state law. Some Associations, especially older ones may not have to get a special assessment ratified by the homeowners though. 

Second, the Association should consider options for owners that can't pay for it in full such as a payment plan or association loan. 

Unless you're on the board, your demands for a re-bid might fall on deaf ears. Sewer issues can get spendy, especially if there's concrete breaking involved. 

A good association attorney might be able to help you challenge the validity of the assessment - did the board follow the law and governing documents when establishing it? That's going to come at your own cost, probably not worth it. 

***Also, you might have special assessment insurance via your HO6 homeowners policy, call your insurance agent!***

Good Luck! 

I guess the thing that comes to mind for me is why doesn't everybody have loss assessment coverage on their condo policy? Every time I write a condo, I automatically max. out the loss assessment coverage. It only adds about $12.00 a month to the premium but covers 50-100K in loss assessment.

You may have the coverage, and or others may as well. Look to your insurance policies?

@Jeremy Barth

If you have good insurance it will probably cover this (minus the deductive of course).  Make sure you contact your insurance provider first.  Mine insures me against any special assessments. If your insurance doesn't cover special assessments, I would say start shopping around for a new one. 

My first thought was to go buy another home now, and let this one go back to the bank, if there's no other financially sound option.

My second thought was, if you really like the place, let all the other owners know you're interested in buying their units :-)

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