Condos Are a Shifting Market – Even in Charlottesville and Albemarle

Here’s what I would do:

Come out publicly with a statement of your final standing, (assuming it’s good). After all, you’re marketing the community more than ever before, and association solvency is more crucial than ever.

It’s time for buyers to read the condominium developments’ packages. Especially the part where you assess the solvency of the development’s association.

Thinking about this article in the NYTimes.

We don’t have co-ops in Charlottesville, so just substitute “condo” for “co-op” –

Moreover, barring a swift economic renaissance, lawyers, managing agents and condo boards are bracing for things to worsen significantly this year as job losses mount, severances and savings evaporate, and the new reality sets in.

“The world as we’ve been living in it for the last several years has changed seemingly overnight,” Mr. Finkelstein said. “We’re at the very beginning of this.”

While lawyers are reporting a similar rash of defaults among co-op owners, the risk to the building (and by extension to the defaulter’s neighbors) is slight by comparison. That’s because a co-op building is entitled to its share before the bank can claim anything in the event of foreclosure (the ultimate consequence of nonpayment of maintenance charges).

But in condo foreclosures, the debt priorities are reversed. After a foreclosure process that these days can take two years — during which unpaid common charges proliferate — the building gets its due only after the bank is paid in full. And many condo owners have little equity in their apartments.

“I think it’s safe to say that the value of any apartment purchased in the last two years is less than its purchase price,” said David Kuperberg, the president of Cooper Square Realty, a Manhattan property management company. “The simple calculation is that if you bought an apartment a year ago and financed 90 percent of the purchase price, as many did, and now it’s worth 20 percent less, you’re upside-down as an owner.”

Even worse from the perspective of the condo building, if an apartment owner defaults on common charges but keeps up with mortgage payments, it falls to the building rather than the bank to pursue the foreclosure action.

This is why I have advised clients to perform and demand extra due diligence when looking at condos in the Charlottesville/Albemarle area. Rather than mention specific developments here, I’ll save that for one-to-one conversations.

Imagine this, however – and these are made-up numbers for the sake of round numbers –

Say there are 100 units in a condo development. Condos fees for water, sewer, grounds maintenance, insurance, etc. are $100/month. Now, say five condos go to foreclosure – after all, foreclosure may be the best business decision (excepting morals and ethics) available –

The foreclosure process takes six months or so … that’s $600 loss to the condo association – per unit – so that’s a six thousand dollar loss to the condo association.

And this is where the wicket gets sticky – this could be the prime example of a negative self-fulfilling prophecy.

Condo (conversions) used to be great short-term investments. Now, condos’ inherent risks may keep more people from buying at their current price points, thereby moving demand lower for increasing supply. Less demand may lead to lower prices … lower prices could lead to more foreclosures/short sales …

More people don’t buy because the condos are perceived as being risky, and they get perceived as being risky because people don’t buy.

Suffice it to say, and the comment thread is open, if you have insight, I’d love to hear it.

Related reading:

Why some Charlottesville condos are risky

A glut of condos in Charlottesville

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1 Comment

  1. Greg Slater February 24, 2009 at 15:01

    Jim-
    Are you sure the condo is going to be out the fees? I think a lot of the condos have a right to lien the property. If they are proactive and do correctly, they might be able to capture the back fees at the transfer of the property.

    For that matter, you could have the same problem in any property governed by an association with fees, not just condos.

    I have reached out to a local property manager to see if they can provide any insight on this. I have always argued that GOOD professional association management was well worth the expense.

    Reply

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