Homeowner Associations Increase Short Sale Aggravations!Posted on February 10, 2014 by
When working with a Seller on purchasing a short sale it is very important to know the terms and conditions that the new buyer must uphold with the Homeowners Associations. Recently, we started working on a short sale wherein the Seller owed the Homeowner Association a fee of $457.00 per month and another Homeowner Association issue wherein they would only allow the Buyer to be an owner occupant. The Homeowner Association claims that the percentage of rentals have been filled and since that quota was met, this leaves only owner occupants eligible to purchase the property. Now your pool of buyers has been decreased greatly leaving only homeowners to buy the property.
The first thing you need to do when obtaining a short sale or any type of deal from a Seller, that you are interested in purchasing the property to fix and flip or just rent, is to obtain the Homeowner Associations Bylaws. There are Bylaws and Declarations that the Homeowners Associations are to provide to a new buyer. Here are some of the things you must look for to prevent any show-stoppers:
- Application Fee for the New Buyer
- The New Buyer must be approved before the Board and the time-frame for this approval
- The percentage of owner occupant homes versus rentals allowed
- The colors in which the exterior of the house needs to be painted
- The size of tree(s) that needs to be planted
- The type of fence you can have on the property, if any
- The New Buyer cannot purchase the property in a company name, ie. LLC, Inc. or “C” Corporation and more!
Where do you find out this information? First you need to ask the Seller what is the name and contact information for the Homeowners Association(s). Often, I find that the sellers no longer have this information. Please note that there could be one or two associations controlling the property. The names of the Homeowners Associations are shown on the title work and you can track their telephone number from title work and/or just google their information.
Once you know the name of the Association, you will need to contact them and ask for a copy of the Bylaws and Declarations. There is sometimes a fee of up to $50.00 for these documents. At the same time, you need to ask the Seller to obtain information as to what amount is owed on the Homeowner Association dues. Fighting with the Associations to take less than what is owed on their dues can be very time consuming. You also have to remember that the Board Members of the Homeowner Associations are individuals who live in that subdivision. Therefore, sometimes your request for a reduction of the Homeowner Associations dues is denied because these people have made this decision based on a personal vendetta not a business decision. I had one Homeowners Association that hated my Seller and refused to reduce his $23,000 dues so I had to have the new buyer pay these dues over and above the purchase price in order to get this deal sold. Yes, the short sale lender did approve this type of deal. In order to sell a house, you have to think outside of the box and never take “NO” as your final answer. I teach my students that there is always a way to make it work and I show them how to do it. Even though the Homeowners Associations know that they are only entitled to 1 full year of dues pursuant to Florida Law should the house go to foreclosure, they didn’t want to settle because they really disliked the previous Seller. I do believe that there were no intelligent life forms there! Making that kind of decision and not settling with a perspective buyer is only now going to increase the “dues” that are currently due and also what is owed for future Homeowner Association Dues based on their new Reserve Study.
I have two properties at this time that the Homeowners Associations are controlling where only an owner occupant can purchase the property, as their quota for investment properties has been filled. As an Investor, where does that leave you? Depending on the terms and conditions, it may leave you totally out of the deal. That is why I say that being a Realtor and an Investor gives you the best of both worlds. So … unless the Investor is going to purchase the property as a second home and live in it, he or she cannot purchase the property. Also … if the Investor purchases the property, he or she can only resell the property to an owner occupant.
Always fully analyze your property and your exit strategies before you decide to purchase the property, because sometimes, it is just not worth your time and effort!
I look forward to providing you with future tips! Stay tuned or join me at my next boot camp in February!