Its not impossible, but difficult to get a loan.
There are Lenders and Brokers offering Loans for Condos in litigation.
A lot also depends whether this is a Purchase Loan or Refinance Loan.
It isn't impossible to obtain financing. I"m a loan officer at First Capital Mortgage and we have closed a lot of loans for condo units in a pending litigation, such as SB 800 litigation. As long as the individual comes in with 20% down or on a refinance, at least 20% equity and the loan amount is less than or equal to 417K, I can get a limited review on a condo complex that will only be concerned with reviewing the master insurance policy of the HOA, thereby avoiding the HOA cert that would normally disclose the litigation against the HOA.
If you'd like further information, please let me know.
Unfortunately, depending on the type of litigation (construction litigation vs. homeowner enforcement), a lawsuit--especially in today's trepidacious mortgage market--may stifle any owner's chance of refinancing and even worse, may prevent others from selling their homes. This is one of the reasons that, if a construction related lawsuit, I tend to advocate working with the developer in mediation or arbitration rather than through lawsuits, which ultimately damages both the developer and the homeowners association while making the two attorneys financially endowed.
If your association is already in the midst of a lawsuit, talk with your Association Manager to determine which lenders have been successfully doing loans on the units in the community. Usually, if a mortgage loan is even possible in this situation, Association Managers will (by virtue of having to fill out the documents for lenders) know exactly who you might contact to obtain a loan.
Grace Morioka, SRES, e-Pro
Area Pro Realty
co-Author, "Homeowners Associations: A Guide to Leadership"
Order a condo certs and submit it to your lender: http://www.condocerts.com. These reports include information regarding the HOA and the financial viability of the project including any pending litigation. Loan underwriters use this information, in addition to information obtained from the HOA, to determine if a condo is what is called "non-warrantable." Lenders are avoiding lending on properties that can be deamed as such. One possible solution that I've worked through is to negotiate with the seller that they pay any resulting assessments charged in relation to the cost or outcome of the litigation. This puts the lender at ease knowing that any related assessment will not have to come out of your pocket and possibly hinder you from making your loan payments.
Best of luck!!
San Diego Real Estate Specialist
Real Estate Sales and Appraisals
It depends what the litigation is about, how far into the litigation they are, and how far into the repair process (if the lititgation is over but repairs haven't been completed). The short of it is probably no. I suggest calling my loan broker, Greg Vanslow at 650 948-0456, and he can give you the ins and outs of it.