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Message # 922 Buying a condominium (Pt. 2)

mp3 #922 Buying a Condominium Part II (mp3 file)


As a condominium buyer, you should be familiar with several basic documents. Ask the seller for copies and read them carefully. If you need help in understanding them, seek legal assistance.

Final subdivision public report.

All subdivisions (including condominiums) require a public report on the development, issued by the California Department of Real Estate. The public report discloses all information which the department feels is important for prospective buyers to know. The report covers such matters as location of schools, shopping, utilities, and public transportation. Developer estimates of monthly assessments for maintenance and operational expenses are included. The buyer is also informed how to compute taxes. To help condominium buyers, the Department of Real Estate now inserts a simple one-page explanation into the public report.

If the information provided in this report by the developer is considered incomplete or inaccurate by the Department of Real Estate, or if certain standards are not met, the units cannot be sold. California law requires that the developer get a receipt from the buyer to prove that the document has been received and read prior to sale.

The following documents, among many others, are required by the Department of Real Estate before it will issue a public report on the project:

Declaration of covenants, conditions and restrictions (referred to as the declaration).

Articles of association.

By-laws.

These three documents are the governing instruments for the ownership and management of the project. The declaration describes the project, establishes it as a legal entity, and sets up procedure for the association to follow. The regulations contained in the declaration are not easily changed. The articles establish the association to run the affairs of the development. The by-laws are rules made by the board of governors based on the declaration, and can be more easily changed.

Operation budget.

A state appraiser will review the developer's proposed operation budget to see that it is a reasonable, accurate estimate of expenses.

House rules.

The contractor establishes the basic house rules which govern the daily activities of the owners; the association will add additional ones.

Also ask to see the following documents:

Regulatory agreement.

An agreement between the owners association and HUD/FHA (Housing and Urban Development/Federal Housing Authority) to establish eligibility for mortgage insurance. It is intended to conform a condominium project to certain requirements of the National Housing Act. This document is required by FHA if the mortgage is federally insured.

Management agreement.

This document provides for management of the project until the association can be established. The agreement expires within one year, unless the homeowners vote to extend it.

If the seller refuses to provide any of these documents, shop elsewhere. Also inform the California Department of Real Estate as well so that the matter can be investigated.

Don't be afraid to ask questions.

You have the right to ask the seller questions - and you should get answers. If you don't - beware. Investigate the condominium thoroughly before signing a purchase agreement.

Ask to see the building plan and survey map on file in the recorder's office in the county on which the condominium is being built to get an overall picture of the project.

Don't rely on sales promotion pamphlets for information, don't take the word of a salesperson - an oral promise is not binding. By law, however, a developer must provide anything which is advertised as part of the development.

Inspect your housing unit before purchase, if possible. Some builders misrepresent the size of the unit on floor plans. Or a model unit can be made to appear larger than it actually is by using undersized furniture. Find out if the price of the unit includes appliances, carpets, and drapes as shown in the model unit.

Determine if the builder will provide a written guarantee against shoddy construction and what the warranties are on appliances, air-conditioning, etc.

Remember, if the contractor has the right to rent unsold units, this could lower the value of your unit.

Verify the developer's estimate of property taxes and fire insurance costs.

Check the declaration to see that it includes both hazard and liability insurance on the common elements. The policy should name both the association, as well as each individual unit.

Find out whether there are any restrictions on renting or selling your unit. Under California law, it is illegal to restrict the right to resell your unit, except that evidence may be required of the new owner's financial responsibility or other objective standards may be established.

Don't make a down payment until you are sure of your mortgage payment - unless the purchase agreement clearly states that the down payment will be refunded. And ask about closing costs - they will require cash over and above the down payment. In California, the down payment must be held in escrow until you gain title to the unit, or other protective arrangements must be made. These arrangements prevent the builder from using your money to finance the project.

Consider air and noise pollution. To protect your privacy, find out how well your unit has been soundproofed.

In addition to your mortgage debt, you will be assessed a monthly fee to cover maintenance and related expenses of the common area (building, recreation, and parking facilities, etc.). Find out how much that management fee will be and what facilities it covers. Check the budget to be sure the seller isn't understating maintenance costs.

Find out if you will own the land on which the condominium is built, or if the land will be leased to you at a monthly fee.

Also find out when the building will be completed and when you will be permitted to move into your unit. If the condominium is not completed within one year from the first sale, a refund must be made unless you agree to continue waiting.

Despite these preventive measures, you may still find that you are an unhappy condominium owner. The California Department of Real Estate has jurisdiction over condominium regulations; write or phone its nearest district office for help in Sacramento, Fresno, San Francisco, Los Angeles, and San Diego.

If you have a complaint within jurisdiction, the California Department of Real Estate will investigate it. Its representatives may contact the developer in an effort to resolve your complaint. If the developer cannot or refuses to comply with the law, your complaint may result in an order to cease selling the units or in other action, including referral to the district attorney or attorney general for prosecution.

The Attorney General's Office mainly prosecutes class action suits of statewide significance; it cannot represent an individual. Therefore, you may want to contact your own attorney. Your complaint will have more impact if you file a joint complaint with other members of the project (the more - the better), or if the association files a group complaint on behalf of its members.

If your complaint concerns shoddy construction, contact the district attorney of the county in which you reside, as the county has jurisdiction over building codes and standards. Also contact the Contractors State Licensing Board, at 9821 Business Park Drive, Sacramento, California. Their toll-free telephone number is 1-800-321-2752, or visit them online at www.cslb.ca.gov

If your association needs help in the early stages of its formation, or is having difficulties in managing the project, a representative from the Department of Real Estate may assist. The representative will, if necessary, attend association meetings anywhere in California to help the association become firmly established.

As you no doubt have gathered by now, condominium ownership is a complex step. Therefore, it is strongly recommended that you seek the help of a qualified attorney, preferably one having knowledge about condominium law. Your lawyer should review all documents with you, including the sales contract, before you sign.

You may also wish to read the Contractors State License Board’s free information for new homeowners on their webpage at www.cslb.ca.gov

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