Purchasing a condominium can be an exciting investment opportunity for most prospective buyers. A condo might offer property ownership and the enjoyment of community amenities at the same time. However, it is essential to exercise thorough due diligence, especially when considering buying a condo with legal proceedings.
While it is not uncommon for condos to be involved in legal proceedings, the condo board is often involved in legal disputes that can affect financial liabilities and the overall viability of condo ownership. This article will review the potential challenges and legal aspects involved when considering the purchase of a condo embroiled in litigation.
Importance of Obtaining a Status Certificate
A status certificate is a document that provides information about the condo corporation, its financial health, legal matters, and the property’s overall condition. Obtaining a status certificate is important for potential buyers interested in a condo facing a lawsuit. The status certificate typically reveals whether condo owners may be subject to financial liabilities or special assessments at the lawsuit’s outcome.
Understanding The Nature of The Lawsuit
First, understand the nature and scope of the lawsuit that the condo is facing. Litigation matters and claims regarding condos can vary significantly and may include construction deficiencies, personal injury (i.e. slip and fall), breach of contract and HoA disputes.
Financial Implications of a Condo Lawsuit
A condo lawsuit can have significant financial implications for both the condo corporation and individual unit owners. Even if the condo corporation wins a lawsuit, it may still be responsible for paying some of its legal fees, which can be a substantial expense. On the other hand, if the condo corporation loses a lawsuit, they may be required to pay all their legal fees, as well as some or all of the fees of the other side. This can lead to an increase in condo fees, which can be a burden for unit owners.
In addition to the direct costs of the lawsuit, a pending lawsuit can also have indirect financial implications. For example, a pending lawsuit can make it more difficult for unit owners to sell their units, as potential buyers may be deterred by the uncertainty and potential costs associated with the lawsuit. This can lead to a decrease in property values, which can have long-term financial implications for unit owners.
Assessing the Condo Corporation’s Financial Health
When considering purchasing a condo, it is recommended to assess the condo corporation’s financial health. This includes reviewing the condo corporation’s reserve fund, which is a fund set aside to cover major repairs and replacements. A well-funded reserve fund can provide peace of mind for unit owners, ensuring that the condo corporation has the necessary funds to cover unexpected expenses.
Also, the condo corporation’s financial statements, including its budget and audited financial reports, should be reviewed. This can provide insight into the condo corporation’s financial management and help identify potential financial risks.
Prospective buyers should consider the condo corporation’s history of legal proceedings and any pending lawsuits. A status certificate, which is a document that provides information about the condo corporation’s financial and legal status, can be a valuable resource in assessing the condo corporation’s financial health.
By carefully assessing the condo corporation’s financial health, prospective buyers can make informed decisions about purchasing a condo.
Potential Risks for Buyers
Uncertain Financial Liability: Buyers may become financially liable for the condo’s legal fees or settlements if the lawsuit is ruled against the condo association. Usually, regardless of the case’s outcome, there might be additional legal expenses related to the legal representation and costs of the condo association in the lawsuit. This burden may be imposed on all condo owners, potentially leading to increased monthly maintenance fees or special assessments.
Marketability and Property Value: Selling condos with pending litigation against them might be challenging, as potential buyers may be deterred by the uncertainty and risks involved. This could lead to prolonged market exposure and potentially impact the property’s value.
Limited Access to Amenities: Depending on the nature of the lawsuit, specific amenities or common areas may be off-limits during the legal proceedings, affecting the overall living experience for condo residents.
Difficulty Obtaining Financing: Due to the increased risk involved, lenders may hesitate to provide financing for condos facing litigation. This can limit the pool of potential buyers and make it more challenging to secure a mortgage.
What is the Next Step?
First, if the status certificate indicates a pending lawsuit, you might want to contact the condo corporation to confirm the information is accurate and current. Sometimes, status certificates might reflect cases already concluded or settled between the parties because their records have not been updated. If there is a legal proceeding against the condo corporation, you should seek approval from your lender immediately to avoid funding delays (or no funding at all) before the expiration of condition timelines in your offer.
At Insight Law Professional Corporation, we understand that purchasing property can be daunting. Contact our real estate lawyer if you are refinancing, purchasing, or selling real estate.
The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.