Attorney Advice - HOA Delaying Sale

16 Replies

Seeking RE Attorney advice. My mom is selling her condo and recently lost her buyers because they qualified for FHA and near closing, the HOA lost their FHA certification (currently under appeal). They also revealed a several million dollar deficit.

Now, there are 2 things we are waiting for from the HOA: 1) Notice of approval or denial of their FHA status and 2) Details about their deficit and action plan to recuperate for disclosure purposes. The HOA has continued to delay (unavailable, out of office, will know answer soon, etc.). Furthermore, the condo cannot be rented because there is a 15% thresh hold for rentals which is currently already met.

Questions: 1) What appropriate steps should be taken to expedite HOA responsiveness so the sale can quickly proceed? While we can get other buyer types (conventional, cash), we need to understand the deficit disclosure that needs to be provided for prospective buyers. 2) Can the HOA be asked to allow the property to be rented (regardless of their thresh hold policy) in the event the property is difficult to sell?

THANKS IN ADVANCE FOR YOUR ADVICE!

@Desiree Maya If I were a buyer, I'm not so sure I would want to buy a property governed by an HOA that has a several million dollar deficit AND that lost their FHA Certification AND in a project where you can't rent. I'm not a California attorney, so I can't answer you about whether or not the HOA's threshold policy is enforceable.

My advice to you is simple. Go hire a California real estate attorney with experience going against HOAs and do it now.

Also, was the deficit due to mismanagement of the HOA, or was it due to an employee stealing the money or from fraud? There could be insurance to cover theft or fraud.

I wish you luck on this one.

Originally posted by @Stanley Bronstein :

@Desiree Maya If I were a buyer, I'm not so sure I would want to buy a property governed by an HOA that has a several million dollar deficit AND that lost their FHA Certification AND in a project where you can't rent. I'm not a California attorney, so I can't answer you about whether or not the HOA's threshold policy is enforceable.

My advice to you is simple. Go hire a California real estate attorney with experience going against HOAs and do it now.

Also, was the deficit due to mismanagement of the HOA, or was it due to an employee stealing the money or from fraud? There could be insurance to cover theft or fraud.

I wish you luck on this one.

 In a vacuum, several million is hard to appreciate. There are plenty of projects that have operating budgets in the tens of millions. I'd like to know what percent of revenue this is.

Second the advice for a CA attorney, 

@Stanley Bronstein Thank you for your response.  I hear you.  It is less than ideal of a situation so that is what makes this so volatile - how this comes across to buyers.  @Ronald Rohde To both you and Stanley's points, I think getting a CA attorney makes sense.  We are still trying to find out more about the reason for the deficit.  

As I continue to read about operating budgets and HOAs, 25% of HOA fees should go toward reserves each month. Reaching such a large deficit is troubling. They have to come up with a plan to remedy the gap which may lead to an assessment fee & monthly fee increase for the homeowners. We'll be digging in further.

Thanks for the feedback and advice gentlemen!

@Desiree Maya I'm president of the HOA where I live and we commissioned a Reserve Study about 20 years ago that tells us how much money we should be setting aside. We then take appropriate measures to set aside that amount of money (and usually more).

We then get the Reserve Study updated every 5 years or so ...

@Stanley Bronstein wow what a coincidence that you are the president of your HOA. Helps to get a better understanding of how reserves are supposed to work. I figured that there was a pretty sound management process that should be in place for appropriately allocating money to effectively operate. Great to know. The investigation continues!

@Stanley Bronstein the latest correspondence from the HOA property management: "HUD has rejected the Association's application. The deficit has been growing for over 30 years. This situation is not new. The Board has implemented several changes to resolve the deficit. Such as; reducing operating cost, increasing dues, and bidding projects to keep cost down. The only option they have not explored further is a $24,700 special assessment per owner as recommended by the Association's CPA."

I can't imagine how homeowners would react if they got hit with a $20k special assessment. That is outrageous. Have you seen anything like this in your experience as an HOA president? Are there not other options that could be considered in a case like this?

@Desiree Maya   Ah, so it wasn't theft or misappropriation.  It was mismanagement. Basically the current owners are going to get hit up with a big financial hit when it should have been spread out over a 30 year period.  If each home would have paid $1,000 more per year for the past 30 years, then there would be no deficit.

Wow !

@Desiree Maya How large is your HOA? In my opinion, if it's large with a lot of homes, the apparent mismanagement of the HOA (both by an outside management, if you have one - and the board members of the years), has essentially made all of the houses in the HOA unmarketable, or at least several damaged their marketability. I'm not totally sure what I'd recommend here, but I'd probably at least ask for an initial consult with a CA real estate attorney and/or a class action attorney. If there's a deep pocket somewhere, somebody could be on the hook (such as the management company). It's hard to tell.

Another alternative is to just take the financial hit and sell the property however you can for whatever you can and then it becomes someone else's problem.

I will not hesitate to start walking away with the condos that is red flagged for potential trouble. For one thing there is likely a lawsuit pending, one needs to pay cash for it. Who wants to pay steep dues in the immediate future?  You already answered it can NOT be rented due to too many tenants.


Good question @Stanley Bronstein . It is a 200+ condo community. It is my mom's so I'll be digging in with her to find out more about the HOA board and management history. I believe they've had more than one property management company over the years. It is unfathomable that board members would let this type of deficit grow considering it impacts them as well.

Thank you - yes, a local attorney consult at minimum seems necessary and if time calls for it, a class action attorney could make sense.  There has got to be accountability somewhere. 

Selling the property is definitely the most desired action with the appropriate disclosure of course to be legally covered.  

What a fiasco!

Originally posted by @Stanley Bronstein :

@Ronald Rohde I suspect if the monetary loss was enough for them to lose FHA accreditation, it was probably more than a nominal percentage ...

 I did not assume that those two events were related. Her post said Lost accred. They they revealed xxx.

Anyway, don't mean to quibble a moot point.

That said, I wouldn't avoid HOA entirely, i just have to go in with capital to purchase a majority interest and control the board. This is the only way to align interests for long term value.

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