Can I protect myself from a potential Money Pit?
October 31, 2008 10:03 AM Subscribe
I'm buying my first home and there are potential special assessments looming. Am I truly protecting myself from future repair and legal fee costs by setting up an escrow account? I'm buying my first condo and am clueless. Help me make this protection ironclad or tell me to run away!
I'm considering purchasing a condo unit in Chicago's Lincoln Park. My purchase price represents a very good value - the unit is in short sale and it appears the mortgage-holding bank is ready to cut their losses and make this deal. Unfortunately, the building's disclosure report is bad. There is a problem with the roof, but the HOA hasn't committed to fixing it. Also, there are two other owners going through foreclosure, so there are legal fees for the HOA to pay, as it is apparently named as a party in the lawsuits filed by the defaulted-upon banks. Further, if these owners are no longer paying their HOA fees there may be a shortage coming. Currently their reserves are only $9000.
While this all scared me very much, I had my attorney write an agreement so $20,000 would be placed into escrow. It would cover repair to the roof, and repair to any damage caused by not fixing the roof right away. It would cover any legal fees incurred by the ongoing foreclosures. It would cover any increases in HOA fees for any reason. All this for 2 years. How safe is this agreement in protecting me from having to pay for these issues? What more info do you need to answer this question? What questions should I be asking? My offer hasn't officially been accepted by the seller's bank, so I still have an inspection to complete. I may be able to learn more about these issues at that time.
So what is your advice? Is this contract strong? I know YANML, etc. Or should I run screaming into the hills and find a safer deal?
I'm considering purchasing a condo unit in Chicago's Lincoln Park. My purchase price represents a very good value - the unit is in short sale and it appears the mortgage-holding bank is ready to cut their losses and make this deal. Unfortunately, the building's disclosure report is bad. There is a problem with the roof, but the HOA hasn't committed to fixing it. Also, there are two other owners going through foreclosure, so there are legal fees for the HOA to pay, as it is apparently named as a party in the lawsuits filed by the defaulted-upon banks. Further, if these owners are no longer paying their HOA fees there may be a shortage coming. Currently their reserves are only $9000.
While this all scared me very much, I had my attorney write an agreement so $20,000 would be placed into escrow. It would cover repair to the roof, and repair to any damage caused by not fixing the roof right away. It would cover any legal fees incurred by the ongoing foreclosures. It would cover any increases in HOA fees for any reason. All this for 2 years. How safe is this agreement in protecting me from having to pay for these issues? What more info do you need to answer this question? What questions should I be asking? My offer hasn't officially been accepted by the seller's bank, so I still have an inspection to complete. I may be able to learn more about these issues at that time.
So what is your advice? Is this contract strong? I know YANML, etc. Or should I run screaming into the hills and find a safer deal?
Only 2 years? So if your escrow gets drained in the first 2 years because of legal fees and roofing replacement/damage, will you regret it if and when you have to fork over more for additional assessments starting in year 3?
Run away.
posted by ImproviseOrDie at 11:33 AM on October 31, 2008
Run away.
posted by ImproviseOrDie at 11:33 AM on October 31, 2008
There are good deals and bad deals. You should only do good deals. This is a bad deal.
posted by charlesv at 11:37 AM on October 31, 2008
posted by charlesv at 11:37 AM on October 31, 2008
My purchase price represents a very good value - the unit is in short sale and it appears the mortgage-holding bank is ready to cut their losses and make this deal. Unfortunately, the building's disclosure report is bad.
Think of it this way: these potential special assessments and others that you can't currently specify or immediately foresee are part of your purchase price. Don't think of it as a condo that is "a great value" but might incur extra costs down the road; think of it as an extra risk that you are taking - and that extra risk negatively impacts the value. Its like buying a beater car for $150 that runs ok right now, but whose rusted-body and worn belts foretell a host of extra investment down the road.
posted by googly at 12:29 PM on October 31, 2008
Think of it this way: these potential special assessments and others that you can't currently specify or immediately foresee are part of your purchase price. Don't think of it as a condo that is "a great value" but might incur extra costs down the road; think of it as an extra risk that you are taking - and that extra risk negatively impacts the value. Its like buying a beater car for $150 that runs ok right now, but whose rusted-body and worn belts foretell a host of extra investment down the road.
posted by googly at 12:29 PM on October 31, 2008
Nthing what everyone else has said. I've had friends in this situation and the results were Not Pretty.
posted by thomas j wise at 1:14 PM on October 31, 2008
posted by thomas j wise at 1:14 PM on October 31, 2008
I had my attorney write an agreement so $20,000 would be placed into escrow. It would cover repair to the roof, and repair to any damage caused by not fixing the roof right away. It would cover any legal fees incurred by the ongoing foreclosures. It would cover any increases in HOA fees for any reason. All this for 2 years.
It will only cover these things if they are LESS THAN 20K! Who can guarantee THAT???
posted by tristeza at 1:27 PM on October 31, 2008
It will only cover these things if they are LESS THAN 20K! Who can guarantee THAT???
posted by tristeza at 1:27 PM on October 31, 2008
Run away. There is no way to protect yourself from special assessments! They can come in at any price and when that 20000 is gone. You will have to foot the bill. Not to mention that living in a building where multiple units are being forclosed is sketch.
posted by saradarlin at 1:49 PM on October 31, 2008
posted by saradarlin at 1:49 PM on October 31, 2008
This thread is closed to new comments.
Any building that's run like that by its HOA - no reserves, repairs to a roof being left for too long - it's a nightmare waiting to happen.
Take your $20k and get a nicer place, I beg of you.
MeMail me for more details - I wish every single day that I had listened to MY gut when I bought my place, which sounds so so much like yours.
posted by tristeza at 10:19 AM on October 31, 2008