Publications
Purchasing a Home in an Association
Published March 29, 2003 as
Some things to consult your lawyer about before condo buying
“Spring has sprung, the grass has ris´,
I wonder where the flowers is?”
With the onset of spring, comes a very active real estate market. Combined with near record low mortgage rates, the buying and selling of homes in Associations should be in full bloom
For most people, the purchase of a condominium, townhome or co-op will be one of the most significant financial decisions of their lives. A properly conducted transaction, and more importantly, what happens after it is completed, may have a long range effect on their economic well-being.
In a number of other states, title insurance companies and/or escrow companies control all aspects of the real estate settlement, exclusive of any input from a lawyer. Unless a legal problem arises, a lawyer’s participation is unwarranted. In Illinois, however, custom dictates that lawyers play a significant role in the conduct of a closing. It has always been my philosophy that a conscientious practitioner can save his client a great deal of aggravation and substantial sums of money by merely practicing preventive law. In other words, take ten steps down the road and then look back and see from whence you came. The following are some basic areas to review with your lawyer prior to buying a condominium, townhome or co-op.
First, a real estate closing should go very smoothly, but not always, so the attorney’s fees should be viewed as part of the total investment. When a dispute arises, it is important to resolve it prior to the time of closing. This is why it is essential to have an objective and experienced professional resolving the controversy. In most cases, a closing can be a very emotional experience, especially for a first-time buyer.
Learning about the Property. Here are some simple questions to ask: Are you looking for a townhome, a co-op, a condominium apartment? Do you want a pool, exercise room, laundry facilities, or other amenities? If you are buying a single-family home, is there an association?
Whether you are buying new construction, working with a realtor or driving around looking at FOR SALE BY OWNER properties, it is important to know what type of community you are buying into. What kinds of warranties are available?
Are pets allowed, can you rent out your property? Can you buy additional parking spaces, etc.? Always do a diligent inquiry before you sign an offer to purchase. Also, the culture of each association may not be universally suitable for every purchaser. If you are a young married, you do not want to move into a community where the average age is 70.
Coordinating with the Realtor(s). Most transactions have two or more real estate salespeople involved. It is important for the attorneys and the brokers to work together as a team. Remember, everyone’s objective is the same; to close the deal.
Some people forget that a real estate transaction is not intended to be an adversary proceeding. Through frequent communication, problems regarding occupancy dates, walk-through items, appropriate credits and all other potential trouble spots can be resolved at a preliminary stage.
The salesperson should make sure that the purchaser’s attorney has the following: a copy of the purchase agreement, any riders attached, applications for financing, all association documents in the seller’s possession, the seller’s attorney’s name, etc. Immediately, the purchaser’s attorney can touch base with all of the principals to begin preparing the way for a smooth transaction, even if it is scheduled two months away. If the property is new construction, then all of the aforestated information should be obtained from the builder.
Reviewing the Contract. Your attorney should always review the agreement before consummating a final deal. If the lawyer did not review the contract prior to the final acceptance, the horse may already be out of the barn when the door is closed. Just having a lawyer look at documents at a closing is only one half the job.
Most standard form purchase agreements prepared by title companies, real estate associations, etc. are generally seller-oriented. An experienced real estate lawyer should be familiar with these particular forms. The attorney must make sure his client has enough time to obtain financing, that the buyer is not paying any charges that are customarily seller’s charges, that the seller or builder warranties the condition of the premises, a current survey of the property will be provided, and so on.
In Illinois, under §22.1 of the Illinois Condominium Property Act, upon request a seller must also provide a copy of the declaration, by-laws, operating budget, a floor plan (new construction only), a statement of liens and accounting status, anticipated capital expenditures for the next two years, status of reserve funds, financial statement, status of any pending litigation, insurance coverage and a statement of improvements and alterations to the unit and the name of the principal officer or agent of the association. This information must be provided within 30 days of a written request and the association has the right to charge a fee for copies. If the property is a conversion condominium, the developer must also provide a statement of any condominium fee due, a statement of actual expenditures made for repairs within the last two years, a statement of provisions made for reserves and an engineer’s report. Also, many communities have adopted consumer protection conversion ordinances which may require additional disclosure as well.
Home Inspection. In Illinois, the seller of any real property must fill out an affidavit disclosing the existence of any material defects. The contract will allow for a limited period of time in which to inspect the property for defects. A smart buyer will hire a reputable inspection service to give the property a thorough once-over.
Review Financing Documents. If you are a purchaser, it is important to be informed about what type of financing obligation you are incurring. The attorney should be consulted prior to a buyer paying any application fees in advance. Is the mortgage adjustable, is there a balloon payment, what standard is the interest rate linked to, how many points is the mortgage broker charging, will HUD adjust the proposed rate of interest prior to closing, will the paper be sold to another lender, is there a minimum owner/occupancy requirement?
The lawyer must be sure that the note and mortgage and all condominium documents are prepared in strict compliance with the law. Most closings now provide for execution of loan documents at the time of closing (settlement). However, your attorney should be able to review copies of these documents prior to the closing.
Long Range Planning. Should you take title to the property in a trust? Although the benefits and detriments of trusts are dependent upon your particular needs, it is important to review its necessity and how to eventually accept title.
Reviewing the Documents. If there is a survey (townhouses, duplexes), is it free and clear of encroachments? Do the boundaries and building lines conform to local ordinance? Are all of the title exceptions noted? Is the deed made out properly? Have the expenses and credits been properly apportioned? Has the seller disclosed all regular and special assessments? If there was a special assessment, who is going to pay it?
By taking just a few minutes to carefully scrutinize each document, your attorney can ensure you are getting what you have bargained for. Remember, if you do not have an attorney to methodically review the documents, who will?
The Closing (Settlement). By following the above recommendations; by communicating with the brokers, the lawyer, the lender, the closer (the builder) and the buyer, the closing need only be a mere formality. Most major problems can be solved in advance of the closing.
Last minute changes, review of closing figures and resolving final details are the only additional tasks other than exchanging documents and dispersing funds. At the time of closing, the attorney should make sure that the recorded documents and policy of title insurance are forwarded to his office for final review prior to being sent to the client. All documents should be carefully and thoroughly explained to the client(s) in order that they understand what has transpired.
Conclusion. These are just some of the many items an attorney will be able to review in the course of representing a real estate purchaser. The attorney’s role will be primarily to protect his client’s interest and notwithstanding the solitary transaction, it can also establish a long-term attorney-client relationship. Most importantly, your new home will not become a nest of problems after the fact.