Condominium Ownership in a Residential Community Defining condominium –Horizontal ownership –Co-owners living in close proximity –Examples of condominium association living (town house units, downtown lofts, garden apartments, detached housing and high-rise penthouse units)
Legal Rights of Ownership Collateral for mortgage financing Filing for homestead Tax deductions for property taxes and mortgage interest Taxpayer Relief Act of 1997
The HOA Ownership in community property Right to assess members for operational expenses Common area maintenance (CAM) fees
Mistaken Identity Which drawing illustrates a condominium apartment building? Which drawing illustrates an individually owned and operated apartment building? Which drawing is owned by a cooperative? Which drawing is a conversion from an individually owned apartment building?
Legal Forms of Ownership Don’t Architecturally Describe Anything Is it a unit or an apartment? Is it a town house or a condominium town house? Town houses in a planned unit development
What Is Horizontal Ownership? The Horizontal Property Acts Declaration for condominium Definition of a condominium unit Who are the co-owners? General and limited common elements
Statutory Requirements Legal description, building description, construction material, and number of planned units Fractional or percentage of undivided ownership and voting rights Bylaws and election requirements Right to establish enforceable liens Certificate of dues and assessments
Mountain View Condominium Case Mountain View Association v. Bonersbach
The Condominium Association Documents Articles of Incorporation Bylaws Covenants, Conditions, and Restrictions (CC&Rs) Rules and Regulations
The Condominium Addendum Shifting the Risk –Purchaser agrees that prospective ownership is subject to the Association’s established terms and stipulations –Seller’s requirement to give “current” condo documents (including all amendments) to buyer (within an agreed-upon time frame) for legal review
The Condominium Addendum Shifting the Risk (cont.) –Buyer’s examination period –Recognition of board’s possible approval –Seller warrants that the dues are current
Self-Management Versus Professional Management Who is going to handle the complaints? Advantages of using a qualified property management firm: –Complaint handling –Administering the Association’s business –Collecting monthly dues and special assessments –Timely filing of required IRS documents and amendments with the Secretary of State –Reviewing bank statements –Working with insurance agents and adjusters
What Was It before the Conversion? Was it a historical office building? Was it a stately hotel? Was it possibly a factory or a warehouse? Was it previously an individually owned apartment building? Be sure to check its condition.
Conversion’s Condition: Be Sure to Check It Out!
What Is Cooperative Ownership? General Overview –Assigned shares –Shares pledged as collateral for financing –Signing of a proprietary lease –Discovering the building’s effective age
What Is Cooperative Ownership? (cont.) Shareholders in a Cooperative –Shareholders are tenants –Freedom from building maintenance –The proprietary lease
What Is Cooperative Ownership? (cont.) Corporation (cooperative) holds title rather than an Association –Expenses for common areas –Expenses for apartment units –The board of director’s responsibilities
The Board of Directors’ Responsibilities Payment of property taxes, insurance, and mortgage Budgeting Collection of monthly fees Handling disputes between shareholders Approving new shareholders
State Laws Governing Cooperative Ownership Articles (of Incorporation) Powers – Duration –Perpetual Succession –To Sue and to Be Sued –To Acquire, Sell, Mortgage, or Lease –To Enter into Contracts –To Elect Officers
State Laws Governing Cooperative Ownership (cont.) Bylaws Members Meeting of Members Voting Amendments of Articles Required Recordation Taxation Homestead Upkeep of the Cooperative Election of Directors Liens for Assessments
Condominium Versus Cooperative Ownership (Table 4.1) Instruments Used to Transfer Interest Approval Requirements to Transfer and Interest Responsibility for Payment of Mortgage and Property Taxes Rental Possibilities Eviction Possibilities Financing
Real Estate Agents and Buyers of Cooperatives (Table 4.2) Financing and Monetary Concerns Comparison Issues Construction Issues Usage Issues
New Construction Is the new condominium project Fannie Mae approved? Transitioning a condominium development over to the Homeowners Association Common area maintenance (CAM) –What is CAM? –Why does CAM vary from Association to Association?
New Construction (cont.) Potential Conflicts of Interest Tax Abatement Incentives –Who has to file? –What does the phrase “tax abatement” actually cover?
Construction (cont.) The New International Building Code and the International Residential Code Safety and Comfort Concerns in Multifamily Dwellings –Sprinkler Systems –Privacy, Soundproofing, and Fire Safety –Sound Transmission Class (STC) –Impact Isolation Class (IIC) –Quality Windows Panelized Construction
New Construction (cont.) The Trap of Determining Cost Per Square Foot –Analyzing Features Instead of Square Footage –A Town House Evaluation Chart (See Table 5.2)
Various Types of Homeowners Insurance Policies Insurance for common elements The sooner the insurance is in place, the better The individual insurance policies –HO-6 –HO-2 –HO-3 –HO-4
Individual Unit Property Insurance For interior surfaces, personal belongings, and liability (HO-6) For interior & exterior town house coverage, personal belongings, and liability (HO-2 or HO-3) For interior air space, personal belongings, and liability (HO-4)
Various Types of Insurance Policies (cont.) Optional Insurance for Consideration –Gingerbread Endorsements –Personal Umbrella Policy –Loss Assessment Coverage Purchase Offers Ideally Subject to Homeowners Insurance Coverage Comprehensive Loss Underwriting Exchange (CLUE)
Insurance Concerns (cont.) Proportionate Share of the Homeowners Association Insurance Premiums Bonding Director and Officer Liability Insurance –Insurance to defend an Association’s officers –Before agreeing to serve, inquire about coverage