My buyer wants to know what with a HOA litigation

Asked by Jean Paul Schwarz, San Diego, CA Wed Aug 8, 2012

My clients want to purchase condo but we find out that is under litigation for common areas defective construction. Besides not being able to get financing what other problems buyer can run in to?

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Cindy Davis’ answer
Cindy Davis, Agent, San Diego, CA
Thu Aug 9, 2012
I agree with the below response. Construction defect lawsuits are incredibly common, particularly with condo conversions - which are prevalent in UTC.

Generally, you can get financing, but need 20% down or more in order to make it work.

The most likely outcome of a lawsuit will be either an increase in HOA fees or an assessment, I've recently looked for condos in UTC and I know the choices are skimpy. If your client is limited financially, then this is a scary outcome.

If your clients able to buy the home comfortably and have enough down payment and cash reserves for contingencies, it might make sense to move forward.
0 votes
It is an ALL CASH purchase, my concern has been addressed as for the future and possible assessments with lawsuit outcome. Thank you!
Flag Thu Aug 9, 2012
Kari Shea, Agent, San Diego, CA
Wed Aug 8, 2012
Hi Jean Paul,

First rule of condo construction is not whether the builder will get sued, but when they will get sued. Many condo associations are involved with litigation for defects. This does not mean your client cannot get a loan. What you have to do is ask for a copy of the legal proceedings and see how significant the defects are and determine how your client may be effected.

As a general rule of thumb, have an accountant look at the HOA financials to see whether they are solvent and in compliance with the rules for reserves, etc. Due to the economy over the past 5 years, many HOA's have dues in arrears and are suffering financially as a result.

Lastly, if your client chooses to move forward, if the builder wins the law suit will there be a special assessment to correct the defects and how much? Even if the HOA wins, there still may be a special assessment to cover the different of the award from the builders insurance and the amount to correct the defect.

We hope this helps,

Mark & Kari Shea
Shea Real Estate
Home Sales Specialists; New and Resale Homes
Property Valuation Specialists
Land Sales, Acquisitions & Consulting
Serving Greater San Diego
0 votes
Thank you so much. I suggested to the prospect buyer to ask CPA and/or attorney of the implications.
Flag Thu Aug 9, 2012
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