Condo Trouble -- When the Board Takes the Building Hostage

Real Estate Agent with Compass

This could have been an easy and sweet success story from beginning to end.  After he had been looking for different things in different neighborhoods, my buyer finally walked into the place that had it all: the right kind of building, the right floor plan, the right types of amenities, a convenient urban location in walking distance to his downtown power office.

The price was quickly agreed upon, the rest of the conditions as well.

A review of the condo doc revealed that the board of the 3-year-old, 97-unit building was taking the builder to court for some counts of sloppy craftsmanship or failure to fulfill warranty repairs.

We took an inspector with construction background to check out the list of alleged problems and violations. He explained that none of it was unusual or grounds for serious concern. So we weren’t worried, especially when we learned that the associated special assessment (most likely for legal fees and reserves) would be paid in full by the sellers.

The loan had been pre-approved, the appraisal came in fine. All contingencies could be removed.

Then, a few weeks later, totally out of the blue, a call from the upset listing agent.  Another unit in the building couldn’t settle. The lender, a big national bank and incidentally the same lender as ours, didn’t approve the condo because of the pending litigation.

Our loan officer didn’t think it would be a problem. My buyer was strong and likely had better guidelines.
Another two weeks, 20 faxes and 200 phone calls later, the same lender decided for good that my client wouldn’t get a loan, either. Sorry. Just like that.

Never mind that the suit might very well get thrown out. Never mind that most of the alleged “safety violations” had been repaired. Never mind that it wasn’t a suit against the building, but rather the building, or some forceful representatives thereof, trying to take care of itself.  A surely well-intentioned effort, but now it backfires.  Will nobody be able to sell their units here if they want to?

And, is my buyer in default?  Is he risking his earnest money (in this area is a substantial sum)?

No, said the title attorneys, because in the narrower sense, this can be seen as a title problem. (After all, it’s not the buyer’s fault, or anything we could have reasonably expected.)  They will have to let him go.

But—he doesn’t want to go. He wants the place! And the sellers want to sell it to him!

While a couple of loan officers from other lenders have offered to just try and submit the loan (and hope no questions will be ask), my favorite local mortgage broker wanted the cards on the table. He submitted as much information to his lenders as he could, talked to the condo board and their legal counsel, collected every part of the puzzle we could find. My buyer – an attorney himself -- found this to be a more comfortable approach.

19 days before closing, we’re keeping our fingers crossed.  God willing, there will be a way.

Anybody been in this situation?

Update on 6/24/2008.   The transaction closed yesterday.  For the new lender, no problem whatsoever.  In the end, the only negative was all the heartache we had over this, and maybe the fact that the rates for the buyer had slightly gone up since the first lock.

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© 2012, Catarina Bannier



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Robin Sherman - Grand Points Realty - Pensacola, FL
Search Pensacola Homes, For Sale - Pensacola FL Neighborhoods

Ahh . . . the ongoing problems associated with selling condos. Just be thankful you're not selling them in FL (Or NOT selling them in FL!)

Jun 03, 2008 04:27 PM #1
John Ford
Security National Properties - Eureka, CA

I am currently in the same situation. In the event there is a Lis Pendens, or lawsuit pending, most lenders don't want to touch it until everything is solved. If a Lis Pendens is not recorded on the building, you have a better shot at closing the deal. One of my attorney friends mentioned that it may be possible to have some sort of bond in place in case the lawsuit moves forward. You may have to contact an attorney in DC.

Jun 03, 2008 04:48 PM #2
Lynda Eisenmann
Preferred Home Brokers - Brea, CA
Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co

Hi Catrina,

Yikes, tough situation, I've had somewhat similar issues myself in the past.

Coupled today with all the obstacles of loans in general it's easy to see why the issue is compounded.  Not sure if much can be done or not (right now) until things settle down in another year or two. Yet with that said, I wouldn't want to give up until you exhausted every possible solution.

Good luck with this, and please give us a follow up, I'll stay tuned.

Jun 03, 2008 04:49 PM #3
Kelly Sibilsky
Licensed Through Referral Connection, LTD. - Lake Zurich, IL

Gosh, that's terrible. Lenders are being so overly cautious that they are standing in between buyers who want to buy and sellers who want to sell. I've never been in this situation, thankfully, so please let us know how it turns out.

Jun 04, 2008 01:31 AM #4
James Downing - Metro DC Houses Team REALTORS®, CRS, GRI, ABR,MRP, MilRes
Real Living | At Home - Washington, DC
When Looking to Buy or Sell - Make the Right Move

That is crazy!  Now I understand Pat's blog.  I'll have to buy her lunch so she tells me where the building is - I want to steer clear of it until they "see the light".

Best of luck!

Jun 04, 2008 02:28 PM #5
James Wexler - Scottsdale, AZ

here in AZ , we are running across similar issues. so many new builders, with access to large pools of money and no credit history built such complexes. Now 2 -3 years later, they cannot sell the units and are facing bankruptcy, lawsuits, consumer complaints, etc.... good work on walking through the fine print with your client

Jun 06, 2008 04:23 AM #6
Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

Cati, this one gets a "5 YIKES" rating!  What a mess!  I sold a place in Alexandria where the association was being suied by the estate of a guest who drowned in the pool - with a feckless lifeguard on duty.  Their insurance was going to cover the attorney fees and any settlement, and Bank of America made the loan.  Hope you can work it out.

Jun 12, 2008 07:15 PM #7
Catarina Bannier
Compass - Chevy Chase, DC
DC Real Estate The Smart And Fun Way

Dear Robin, John, Lynda, Kelly, James, James, and Pat!  Thanks so much for your thoughtful remarks.  In particular, it was great to know that I wasn't alone in this boat.  Apologies for the late response to all of you.  I have been missing here because I was -- finally -- crazily busy!

The condo closed yesterday, and after a great and very honest, straight forward rescue operation, it occured to me that in the current market independent brokers might sometimes be able to do what single lenders and their bureaucracy can't pull off.  (See follow-up blog)

This one left everybody happy in the end, but things could easily have gone south instead.

Jun 24, 2008 05:53 AM #8
Catarina Bannier
Compass - Chevy Chase, DC
DC Real Estate The Smart And Fun Way

Oh, and to James D.: the "Eleven Condominium," 1111 11th St.  No need to stay away,  just stay away from that lender if you write on anything in there....

And John -- how did your case end?  DC automatically has bonds on all big new buildings, but that didn't seem to matter to the lender.  Once a red flag, always a red flag.

Jun 24, 2008 05:58 AM #9
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DC Real Estate The Smart And Fun Way
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