Read Them, Or Weep
Condo Association Documents Give Buyers a Glimpse of the Future

By Renae Merle
Washington Post Staff Writer
Saturday, November 17, 2007

Perhaps someone should have highlighted the word "estimate" for Dave Rivera as he reviewed the budget for a new 30-unit condominium in the District's Chinatown.

After spending less than an hour to go over hundreds of pages covering the condo association's rules and finances, he completed his purchase of a two-bedroom, $400,000 condo.

Six months later, the association needed cash and levied a $15,000 special assessment on its owners, amounting to about $500 each. Within a year, Rivera's monthly maintenance fee rose from $158.79 to $290.

The estimated budget provided by the developer wasn't realistic, said Rivera, a lawyer. "One day, the money ran out."

About half of the unit owners had predicted that the initial maintenance fees would not be enough, while others, including Rivera, were shocked. But Rivera, who said the fees are still relatively low, said he knows what the developer would say: Did you read the documents?

Before buying a condominium, buyers are given a few days -- how long varies by jurisdiction -- to study what can be hundreds of pages of documents spelling out the community's rules and financial health. In those documents are nuggets of information as minuscule as the operating hours of the laundry room and as significant as plans for major construction, or pending lawsuits. It is during that period, before closing on a deal, that home buyers can walk away without risking the loss of their deposit.

"These statutes are built to give purchasers the information they need to make an educated decision," said Pia Trigiani, a lawyer at Mercer Trigiani, a firm that specializes in real estate transactions.

Yet, every winter, Lisa Franklin faces a predictable deluge of calls from newcomers at the Fireside Condominium in Gaithersburg. They want to know when their parking spaces will be cleared of snow. The association clears the sidewalks and drive lanes but not individual parking spaces, said Franklin, the community manager.

"I am sorry, but I tell them that they might need to borrow a shovel from a neighbor," she said.

New owners often have not read the community's rules and bylaws carefully, leaving them confused about what services the association provides and what is considered the owner's responsibility.

"Those are huge misunderstandings. These are not apartments. They are single-family homes stacked on top of each other," said Franklin, executive vice president of ProCAM, a Silver Spring management firm. "Of course, all of that information is disclosed, but people don't read their resale packages. They should, but they don't."

The level of service provided by an association varies, but new owners sometimes move in with unrealistic expectations. "Part of homeownership is taking responsibility for those things, especially in a condominium," said Peggy Ferris, an agent with Weichert Realtors in the District. "Part of it is being proactive about checking those documents. It is your right and duty to pay attention to that as part of being a home buyer."

The documents that buyers receive vary by jurisdiction but will generally include the association's bylaws and rules; a list of any pending lawsuits or judgments against the community; verification that the association has current insurance covering the building's structure; a budget; and a reserve study prepared by an engineer outlining when major structures in the building, such as the roof or the boiler, will need to be replaced, along with cost estimates for such work.

In a newly constructed building, the prospective buyer receives a public offering statement with many similar details. The statement will also lay out when the project is expected to be completed and will provide a schedule for when the purchasers will take control of the building from the developer.

Buyers should ensure that their packets include all that information, and begin looking for provisions that would be deal-breakers, including such things as no-pet policies and limits on renting out units.

"I have seen people buy into projects that they thought they could rent but they couldn't," said Brandon Green, principal broker for Brandon Green and Associates, a District-based affiliate of Keller Williams Realty. "It can be a nightmare or worse."

Assessing the building's finances can be the most cumbersome -- but important -- part of the review. The buyer should try to determine whether the association is charging residents enough to pay expenses and is not getting into debt or facing a money crunch that will require a special assessment. Is there a pattern of special assessments that may indicate that the finances aren't being properly managed?

"Do not go there and think the fee is going to go down. Make sure the assessment has gone up reasonable amounts every year and has kept up with the rate of inflation," Trigiani said.

It is important to know whether the association has planned properly for the projects anticipated in the reserve study prepared by the engineer and that the association has enough in its reserve accounts. Buyers should compare the budget provided in the resale package against the expenses predicted in the reserve study. Will there be enough? Does the board or management team have a plan for covering the costs?

There is no ironclad rule for how much should be in an association's reserve accounts, agents and lawyers said. "If an association has drained their reserves out by finishing a project and are rebuilding them, that's fine," said Robert Segan, senior partner at Segan, Mason & Mason, an Annandale law firm that represents community associations.

However, if the reserve study predicts that the boiler will need to be replaced soon but the association's recent budgets have not shown enough of an increase to put away enough money in reserve accounts for the project, the buyer may need to reconsider.

During the review period, buyers can and do change their minds. Andrea Evers, an agent with Evers & Co.'s Dupont Circle office, has had two clients walk away from deals after discovering that major projects were in the works. One realized that much of the building's major infrastructure would need upgrades in the near term. The other found that residents would be hit with a special assessment of about $25,000 per resident over the next few years. "We tried to negotiate something with the seller, but it wasn't going to work out," Evers said.

For some, the sleuthing about their prospective home doesn't stop at the documents sellers are required to turn over. Some real estate agents say they encourage their clients to seek out the condominium's board presidents, residents and management company. Just as telling are the community's board minutes and newsletters, which the seller isn't required to provide but can usually be obtained through the condo's management company. Some management firms charge a small fee for the documents, while others require buyers to come to their offices to read them.

"If there is something going on in a condominium, the board knows about it long before it goes up for a vote," Ferris said. "There are things that happen in board meetings that most of the association may not know about yet."

This research can also give buyers insight into the type of community they are considering. Minutes of the board's meetings could reveal whether the board meets regularly, and whether it spends most of its time obsessed with levying fines against residents or plotting out the future of the building. "It just gives you another insight into the condo you're buying into," Ferris said.

Melanie Zamborsky suspects that such inquiries could have turned up the problems she has incurred since buying a two-bedroom condominium in Temple Hills.

Zamborsky and her husband, Andrew, won the bidding for the $161,000 condo after the initial buyers pulled out. The couple went through the resale package, examining references to fees to ensure they could handle the expenses.

But their diligence did not turn up chronic problems with leaks in the building or that their carefully budgeted $482-a-month maintenance fee would jump to $525 a month. "We never even paid $482, which is what we agreed to," she said. "It makes me think, maybe [the initial buyers] knew something we didn't."