| BUYING IN A MULTI-UNIT DWELLING
Q. Ownership in a Common-Interest Community
A. A common-interest community is real estate in which ownership
of individual portions of the
property carries an obligation to pay money to another person, usually
an association, for
maintenance, taxes, upkeep and insurance of property other than the individually-owned
portion of the property. Common-interest communities can come in many
forms. There are condominiums, co-operatives, planned-unit developments
and private-easement communities. In most of these common-interest communities
involving residences, there is a homeowners' association charged with
providing common services and maintaining the common areas. The homeowner's
association may also have jurisdiction over use and occupancy within the
individual units.
Almost all common interest communities are described in a "declaration,"
"master deed,"
or "declaration of covenants, conditions, and restrictions"
found in the land records.
Q. What is the difference between a condominium and a co-op?
A. A condominium is a common-interest community in which individual
units are separately
owned but the owners share an interest in common areas, for example, hallways,
roofs, and
exteriors. With a cooperative, or co-op, buyers purchase shares of stock
in a corporation that owns a building. A condominium owner has title to
his or her unit; a co-op owner receives a
proportionate amount of shares in the corporation that owns the building,
based on the unit's
proportion of the building.
For the purposes of income tax laws and other laws regarding real estate,
a condominium
is treated as a single-family home. But an association has the right to
impose maintenance fees,
demand escrow payments for large repair bills, and manage the overall
operation of the entire
building. Owners of co-ops must abide by the corporation rules; additionally,
if they fail to pay
their fees, they may be evicted because they do not hold title to their
unit. (See the section on
shared ownership in the chapter on home ownership, (Chapter 5) for more
on living in this kind of property.)
Q. Are there differences between common-interest home ownership
and single-family home ownership?
A. In single-family home ownership, the control, decisions, and
expenses are the responsibility of the owner, subject to zoning restrictions
established by local law and any restrictions contained in the declaration
of the builder who originally developed the property. As a general rule,
multi-unit ownership is subject to more extensive regulation than single-family
ownership. For example, there are statutes, rules, and regulations governing
what you may and may not do with your condominium, co-op, or other multi-unit
dwelling.
Be sure to obtain all the information on the terms of sale and such regulations.
Ask to see
the bylaws, operating budget, management agreement, and regulating agreement.
Many states
require disclosures to the purchasers of units in a common-interest community.
Some states have a central agency that licenses and regulates the development
and sale of common-interest
community units.
The cost of the unit is not the limit of your financial obligation with
multi-unit real estate.
There will be monthly assessments to cover maintenance and related expenses
for operating the
common areas. These assessments will be in proportion to the percentage
you own of the total
complex. If all the apartments in a ten-unit building are the same size,
each owner would have a 10
percent ownership stake. This means that each owner will pay 10 percent
of its assessments.
These costs may well increase over time. You should determine the amount
of the monthly
assessment and the potential increase before signing an offer to purchase.
In addition, unit owners are subject to special assessments above and
beyond the basic assessment, to pay for unforeseen improvements or repairs.
Always ask about pending projects and their approximate cost. You also
should be sure that there is enough liability insurance coverage for the
entire development.
Q. Can I obtain a mortgage for a co-op?
A. The law defines owning a condominium as owning a piece of
real estate. Owning a co-op,
however, means that you own shares of stock in a building. Formerly, it
was not easy to get a
mortgage to buy a co-op. That was why prices on co-ops usually were much
lower than
condominium prices. Once the federal government amended the law to allow
the Federal National Mortgage Association (Fannie Mae) to buy co-op loans,
it made it much easier for prospective coop buyers to obtain mortgages.
Today, it is only slightly more difficult to obtain a mortgage for a co-op
than for a condominium, but prices generally remain lower because of the
extra restrictions placed on co-op owners.
Q. What criteria should be considered when buying a condominium
or co-op?
A. One of the best ways to find out information about a condominium
association, co-operative
corporation, or other common-interest property is to talk to owners or
shareholders. Ask them
what they like best about where they live and what their complaints are.
Along with all the things one would consider about a single-family home,
such as neighborhood, prospective commoninterest buyers should consider
the following:
• Percentage of owner-occupants and renters. A high percentage of
renters could indicate poor
sales and/or absentee landlords who are less interested in maintaining
the building. Because of
these risks, it is often difficult for prospective buyers to obtain loans
for units in buildings with
a high percentage of renters.
• Monthly maintenance fees, special assessments, and the history
of such items. You also will
want to ask whether the association or corporation is involved in any
lawsuits brought by
builders, neighbors, or former owners.
• Financial condition of the association or corporation. You will
want to get a copy of the most
recent financial statement and budgets.
• Quality of construction. Hire an inspector and make certain that
he or she checks the
soundproofing, the condition of shared common areas, such as the roof
and patios, and the
electrical, heating, and plumbing systems.
• Bylaws and/or covenants. If these are too restrictive, you may
have trouble in obtaining a loan
or selling your unit or share in the corporation.
The section on home ownership contains detailed information about shared
ownership.
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