CHICAGO CONDO BUYERS - BEFORE YOU BUY, DO YOUR HOMEWORK!
TODAY'S GUEST POSTING COMES FROM CHICAGO REAL ESTATE ATTORNEY, RON HAYDEN
If you're in the market to purchase a condominium on the North Side of Chicago, your research may have taken you across the recent, sudden closing of Regent Realty. Regent managed numerous condo buildings, small and large, in many neighborhoods across Chicago.
Many unit owners' associations hire management firms to handle the building's ongoing expenses and bills. In addition, the association often will assign to the manager the responsibility for holding onto the building's Reserve Fund. The reserve is the "rainy day" fund of cash that most buildings keep on hand for emergencies and other unplanned expenses. The reserves for some larger buildings, such as high rises, can run into the millions of dollars.
When Regent closed its doors, it took with it the operating and reserve funds for quite a few condominium associations.
The Regent Realty closing shows that even people who are existing condominium owners can be hit with unwelcome surprises. New buyers of condos must be especially cautious about making sure that they do their best to check out what they can about their new building. Remember, you are buying more than your individual unit; you are buying into an existing, operating "business", for all practical purposes. A wise buyer checks out basic information about that business before buying in. Fortunately, this is really not all that hard to do, but you should make sure that certain items are in your sales contract.
When a buyer signs a contract to buy a home or condo in Chicago, and all suburbs, it has become standard for the contract to include a number of rights for the buyer. For example, contracts typically permit a buyer to bring in a home inspector and, normally, to cancel the contract if the inspector finds a serious problem in the house.
Buyers also usually are allowed to take their signed contract to their lawyer, so that the lawyer can negotiate with the seller's lawyer over the fine print on the contract. Again, if the parties can't resolve their differences on some issue in the contract, the buyer can normally get out of the contract.
When condos are involved, contracts frequently require sellers to provide buyers with copies of basic documents, such as the declaration, by-laws and, sometimes, budget information. The declaration and by-laws are usually packed full of legalese, often are the same from building to building and usually contain only a few items of interest to most buyers (such as pet ownership regulations).
Of the documents that a buyer usually sees, the budget is perhaps the most important to review. The budget will tell you how much your assessments will be, whether (and why) special assessments have been authorized and how much the building has set aside as its reserve fund.
But the budget is just a piece of the condo puzzle!
I always recommend my buyer clients get a year's worth of Board and Association Meeting Minutes. These documents will really give you some plenty of detailed information about what issues the building is dealing with, or anticipating dealing with. Perhaps there is a large expenditure coming soon (such as replacing a furnace or a roof) but, because no one has bothered to approve a special assessment or build a reserve fund to cover the expense, you wouldn't know about it from reviewing the budget.
You can also learn whether some issues or problems keep coming up at meetings, and whether you really want to be a part of those problems. For example, the building you are considering may have an excessive number of owners who are delinquent on their assessments, or that the Board is particularly litigious or wracked with infighting over certain issues. And, of course, catastrophic problems, such as having been associated with Regent, could show up in the minutes as well, even if no action has yet been taken to fund their solution.
Along with reviewing documents, it is also important that, as a buyer, you add a line to the contract giving you the right to cancel the contract and get your earnest money back if you learn something unacceptable in your review of the condo documents.
Protective condo language can be added by your lawyer during the attorney review after you sign the contract, but it's best if you can include the language at the beginning. That way you'll get the condo documents while the home inspection and attorney review is continuing. Your seller might also be more agreeable to the request if it falls on the same timetable as the home inspection. Your attorney or Realtor can assist you with language.
(Ron is a Preferred Real Estate Partner with Dean's Team. A long-time personal friend of Dean and Sue, Ron and his wife, Karen, live in the Lakeview Neighborhood on Chicago's North Side. Feel free to call him with any questions - 773-296-6006. - Dean)
RON HAYDEN for DEAN'S TEAM CHICAGO
