Northwest Condo & HOA Law Blog : Washington & Oregon Construction Defect Lawyer & Attorney : Barker Martin Law Firm : HOA's, Condos : Seattle, Portland

Kevin Lisota wrote an informative posting Friday (5/1) on the Smart Real Estate Blog Site regarding due diligence a prospective condominium purchaser should conduct prior to purchasing a unit.  Click here to view the article. 

Lisota lists the following steps:

• Conduct a visual inspection;
• Review meeting minutes;
• Review the operating budget;
• Review the current reserve study;
• Review the association's rules and regulations;
• Review the association's insurance policy.

I have provided similar suggestions in seminars and presentations.  First, though, I'd like to add a couple of comments to the foregoing list.  It is not enough to 'review" the operating budget.  I recommend scrutinizing each line item of the current budget, and comparing it with the previous two years' budgets to identify trends and accuracy.  With respect to reserve study, if you do not have any construction or building maintenance experience, pass the report to a friend or family member who may have knowledge and can provide valuable assessment.  Also, make sure to review the reserve account, in addition to the actual reserve study.  Regarding rules and regulations, I would also highly recommend reviewing the association's declaration and bylaws.  You do not have to be a lawyer to identify gaps and potential problems.  When reviewing insurance, make sure to look at policy limits, deductibles, Directors and Officers coverage and endorsements specific to multi-family residences, such as sewer back-up, code compliance and demolition coverage, to name just a few.  There is no substitute for review by a professional insurance agent or consultant.

I would also add the following to the due diligence list:

• When conducting the visual inspection, stop and speak with a few homeowners and ask them the strengths and weaknesses of the community.  You may be surprised at what you uncover, both positively and adversely.
• Call the association manager and ask them the same question.  They do not get paid for such calls, but may provide you with a quick summary of the community.
• In these times of economic crisis, make sure to scrutinize not only the operating budget, but also the bad debt and collections/foreclosure rates. 

Lastly, I believe the foregoing steps are not limited to condominiums; rather, apply to Planned Unit Developments ("PUDs"), as well.

Buying a condo can be more complex than buying a single-family home.  For a successful purchase, make sure to perform your proper due diligence.

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In an article in this week's Stranger blog, blogger Dominic Holden reported on a recent auction of new condominium units in downtown Seattle:

This is the new normal,” says Rhett Winchell, president of Beverly Hills-based Kennedy Wilson Auction Group, which was auctioning 15 units of the Capitol Hill Press Condos today. The company held 30 auctions nationwide this year and Winchell expects more in Seattle next year. “Auctions obviously do grow in popularity when the economy slows because builders need a way to sell property quickly,” says the pinstripe-suited Winchell.

Holden reported that another condo auction last month suggests this may be a trend in the Seattle condo market.

For anyone who is considering purchasing a condominium at an auction, I highly recommend that they obtain and thoroughly review a Public Offering Statement (in Washington) or a Condominium Disclosure Statement (in Oregon) ahead of time.  Further due diligence would include review of the entire CC&Rs and detailed scrutiny of the Association's finances.  Inquiry with the management company and even speaking with a board member or homeowner would also go a long way in ferreting out potential problems.  Red flags and the hair on the back of the neck of any potential buyer should arise when contemplating purchasing a condominium unit at auction.

If you have purchased, or are thinking of purchasing, a condominium unit in Oregon or Washington and would like further information on required disclosures from the Declarant, feel free to contact Barker Martin, P.S. by selecting the "Contact" tab at the top of this blog page.
 

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