What Every Condo Owner Should Know!

There are a lot of changes in regards to the housing market that will affect you and your home values.   I recently came across a situation which illuminated a problem that is happening in Condo Communities around the country.   This is a big enough of an issue that every single condo owner (or potential owner) needs to understand.

When a buyer desires to purchase a condo they have to go through the regular process of being qualified to financially purchase their home.  However, when a buyer is purchasing a condo, the condo association also has to qualify financially for the loan to be approved.    The first thing that will happen is the lender who is representing the buyer will verify that the condo is on the approved FHA list.    The government controlled mortgage entity examines the economic strength of each condo association and determines if it is eligible to be on their list.    They will look at things like how many properties are occupied by the owners versus rented or how many foreclosures are in the community or how many people are delinquent on their condo dues.    If FHA determines the condo does not have a strong financial picture then they will not be put on the FHA approved list.  What that means is that any buyer with FHA financing will not be able to purchase a condo in this community.   In this market FHA loans make up the majority of the loans. So you are cutting out the majority of buyers who would want to purchase your home.

The next thing that the lender will have to look at is the condo dues delinquency rate.    In order for a loan to be approved the delinquency rate in that condo association needs to be below 15%.     What we are seeing in a lot of condo associations is delinquency rates much higher than 15%.   I recently had a buyer who wanted to purchase a condo that had a 36% delinquency rate. His loan was not approved and he was not able to purchase the condo.  Plus no other buyer will be able to get financing on that property, only a cash buyer will be able to purchase that property.    When there is more than a 15% delinquency rate occurs two things will happen:  1. The condo association will increase the condo dues for everyone.    This is how they try to recoup their loss.   2.  The property values of the homes will drop dramatically – up to and above 50%.    Since no buyer who needs a mortgage will be able to purchase your condo your value of your home will be reduced immediately.

If you are a condo owner that is paying your condo dues you may be losing hundreds of thousands of dollars in equity because your neighbors are not paying their dues.   What can you do?    My first suggestion would be to call the condo association and find out what the delinquency rate is currently.    Then you should start attending each and every condo association meeting.   Continue to ask what the rate is and if your condo association is on the approved FHA list.    If your delinquency rate is less than 15% you will need to start educating your neighbors on the consequences of them not paying.   If I owned a condo I would start to go door to door and try to educate as many neighbors as possible. I would start mailing things to my neighbors.  I would do everything I could possible do to educate them on the importance of paying their condo dues on time.

Please watch the video that has more discussion between Scott Smith and myself a lender with Primary Residential Mortgage about more of the issues that are involved with condos.

If you would like help or find out more information about the value of your condo please give me a call at 443-904-3637.

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Laura Strunk is a professional realtor with Keller Williams in Columbia, Maryland. She is also a Charter Member with the Village Connector Community News. You can reach Laura at 410-312-0000.