Contemplating $10M condo repair
Home Sale Hindsight
October 30, 2009
By Tara-Nicholle Nelson
Inman News®
Q: I bought a condo from an agent and she gave me the packet of disclosures and told me to read everything, which I did. I saw that there was a special assessment for $7,000 coming up, and she gave me some notes that basically state that the board does not anticipate any increases in dues.
Needless to say, since I moved here the dues have gone up from $350 to $460! At the last board meeting I found out that there is a $10 million repair project slated for 2028. The board sued the builder over the costly problem and settled out of court for $1 million. Why the board didn't fix it then I do not know. They decided to wait 30 years to fix it when, due to inflation, it will cost $10 million! (The board has only $2.5 million in reserves right now.)
When I asked my agent about it she said that agents have nothing to do with the disclosures -- the seller was responsible for giving me this information in the minutes. She was my friend and I feel betrayed that she did not take more care. What went wrong? What should I do? Should I call her broker or hire an attorney?
A: I'm aware that people choose to buy condos often out of a desire to have less ongoing responsibility than a house would require: no lawn-mowing, no roof repairs, etc. It does seem like a low-hassle experience. However, the surprising reality is that both the initial process of purchasing a condo and the ongoing experience of condo ownership are often much more challenging, because of the element of communal living and that intimidating body: the homeowners association (HOA).
There's nothing inherently evil about an HOA or the board of directors that manages it. But as with everything in life, there are tradeoffs. In exchange for essentially pitching in your lot with a bunch of your neighbors so that no single one of you is responsible if the pipes break in the wall, all condo owners subject themselves to the monthly HOA dues that fund the maintenance and repair of the building and improvements to the community, in both the short and long term.
All owners also subject themselves to the possibility that HOA dues will increase over time. Actually, because management, maintenance and repair costs, as you've noted, unavoidably increase over time, it is not just possible but actually probable that dues will go up over time in almost every case.
The trick part is to try, during the buying process, to predict whether your dues will go up $100 over the next five years or five months. And there's no fail-safe way to predict that with 100 percent certainty, unless the board meeting minutes or HOA newsletters that you receive as part of your disclosure package reflect a dues increase that is already planned or being discussed.
So, what went wrong in your situation? I get the sense that you feel bitter and betrayed because you felt that you did everything right -- asked the right questions, read all the HOA disclosures, etc. -- and still got burned. That is prompting you to look for someone to blame and hold responsible for the unexpected expense of the increased HOA dues that you're now on the hook for.
In fact, there's never a guarantee that HOA dues are set in stone, so unless you have reason to believe that your agent knew and withheld from you the news that dues were going to be increased, or some other clear indication that that was coming, you likely do not have any recourse.
It is actually true that the responsibility for full and accurate disclosures of fact lies with the seller -- and even then, the seller is liable only to disclose facts that he or she knows or should have known.
Many condo owners across the country are currently faced with skyrocketing HOA dues, not due to backwards HOA decision-making, but because so many of their HOA colleagues have defaulted on their dues! Your condo complex's rules and regulations might impose limitations on how often, how much or by what procedure dues can be raised, but they almost certainly do not prohibit increases.
In fact, one of the reasons I advise my own clients to read all 300 or 400 eye-glazing pages of the HOA disclosures is that often the first hints of an HOA dues increase or red flags to bad board decision-making are in the newsletters or the financials -- the items buyers are, in my experience, the least likely to read carefully. For example, if the budgetary projections showed the $10 million budgeted for the 2028 repair, and the reserves showed much less than that currently in the bank, you might have been prompted to ask where the rest of the money was going to come from.
Also, some states require that HOAs routinely conduct and disclose a reserve analysis, which might actually have stated in words, not numbers, that at the current rate of income and expenses, dues would have to go up by "X" amount in "Y" time frame in order to attain the funds needed for the planned repair.
But that's all water under the bridge at this point. The reality is that you own this place and, unless the seller or your agent intentionally or negligently misrepresented the HOA dues as fixed or omitted information that they were aware of, you're probably not going to get any satisfaction from going after them.
If you ask me, your best bet for fixing what you see as bad board decision-making to put the repair off way into the future is to get active and get elected to the board! There's nothing that says a plan can't be changed or moved up, and if you spearhead the change that saves everyone a bunch of money, your neighbors might soon be your biggest fans.
Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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