2010 Jul 29th

Think Your Condo is In Good Financial Shape? Think Again.

Fannie Mae Rules the Daypile of money

Since the credit crisis Fannie Mae has come out with new lending regulations that are having real impact on Hoboken condo buyers.  Here is a brief overview of the pertinent issues:

One entity cannot own more than 10% of the total property.   This is apparently to keep one party from having too much control and risk and to prevent “vulture buyers” from taking over the property.

There cannot be more than 20% non-residental space. Most mixed commercial-residential use projects, like Maxwell Place,  will be affected by this.

The Condo Association must have at least 10% of its budgeted income designated in a capital reserve fund for replacement reserves and adequate funds budgeted for the insurance deductible. This is an issue in many of Hoboken’s older condominium associations.  For years these associations, especially the self-managed ones, have kept woefully inadequate reserves and operating budgets. Many 2 and 3 unit condo buildings have no reserves at all.

Fidelity insurance will be required for condos with 20 or more units, ensuring that association funds are protected. This requirement is being extended to include established condominiums.

No pending litigation involving the structural soundness, safety or habitability. Borrowers may ask for a waiver if they can establish adequate insurance coverage for the litigation or otherwise little or no risk of loss to the association.

Borrowers must  obtain an HO-6 condominium insurance policy on their unit unless the condo master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. An HO-6 policy typically covers personal property, personal liability, and the physical unit from the walls and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.

The Condo Association must have adequate flood insurance. Nowadays, that means replacement value coverage.  Few Hoboken condos have sufficient coverage.  The buyer/borrower may be able to buy a supplement to the condo policy to close the gap in coverage.

This is just a quick overview of the current rules.  Buyers often ask me what the maintenance fee includes or why it is so high.  This is part of the reason.   Paying a management company to professionally manage the building and be sure these requirements are properly met is another.  I have seen deals fall apart every day due to inadequate reserves,  insufficient flood insurance and lack of records.  While it may not matter much to you as a unit owner of you’re not selling today, owning in a building with financial inadequacies hurts the marketability of your property and thus its value.  So in the long run, it matters to all condo owners.

Posted by Lori Turoff | Currently 11 Comments »

2008 Jun 11th

Should Your Hoboken Grandma Run Your Hoboken Condo Association?

Grandma Ran the Building in the Old Days

Before I say anything else let me make it perfectly clear that I have nothing against Hoboken grandmothers.  In fact, for some things, like watching the grand kids, making Sunday supper, there is simply no one better.  I’m using grandma to make a point so hear me out.  There are lots of small 4 or 5 family buildings in Hoboken that were at one time owned by Grandma.  Originally, the extended family lived in them.  Then they became rentals with Grandma as the landlord.  Eventually the tenants moved out when a smart cookie advised Grandma to condo her building which is now worth millions.  So Grandma sold off all the units but one.  Now she lives in that unit with her new neighbors, the other unit owners around her.  Her handsome profit is safely deposited in the bank.  Since it was her building, she kept on  ‘taking care’ of the building as she always had.  At first, the other unit owners were happy to have her to look after things they just didn’t have time to deal with.  Whether it was getting someone to shovel snow, clean the hallways or paint the front door, Grandma had the Hoboken connection and knew who to call and how to get it done.

Times Change – Grandma is in Over Her Head

Fast forward 10 years.  Now each unit sells for close to half a million.  One is for sale, has an accepted offer, and during attorney review the buyer’s attorney naturally asks the seller for the finanical statements and condo documents.   Seller goes to Grandma but all she has is last month’s bank statement.  There really haven’t been any formal condo association or board meetings.  In fact, there really is no formal board.  Grandma, 100% honest, just took care of things as they came up.  The seller has nothing to produce for the buyer to show the history of the building, how it’s been maintained, whether it’s being run according to its budget since there is no budget.  There is no real reserve fund and no real records of what maintenance has been collected or how it has been spent.  Buyer walks away from the deal.

Let’s Teach Grandma a Lesson – Here’s What She (and the Condo Owners) Needs To Do:

1.  Elect a board.

When a building goes condo, as soon as a majority of the units are sold, a condo board should be elected.  Typically the legal documents that create the condo will dictate what that board has to look like.  In small buildings there is usually one person elected president, another treasurer and a third may be secretary.  Remember 8th grade history – checks and balances?  The same idea applies here.  You need a board to run the building.  It’s typically required by the documents that created your condo association.  If you don’t do it, a disgruntled condo owner could potentially cause problems for everyone.

2.  Hold regular meetings.

Sure it’s difficult to find a day or evening when everyone can attend but serving food and beer often helps.  Not only will the unit owners get to know each other, you are neighbors after all, but you can talk about what is going on in the building and what you would like to see happen going forward and make plans and develop a budget.  Whether it is shopping for a better, more affordable insurance policy (your condo association does have insurance on the building, I hope) or deciding to put flower boxes in front of the building, meetings provide a forum to voice these issues.  Again, the condo docs are going to tell you how often and what type of meeting are supposed to be held, and what notice of these meetings needs to be given to the condo owners.

3.  Keep records.

The secretary is the one assigned with the task of keeping records of the board meetings and condo association meetings.  In a small condo building, the board may actually comprise a person from each unit so there’s not a real difference between the board and the association.  Not every word of the meeting needs to be documented, just the general subject of the discussion and any decisions that were made by the board.

Equally important is keeping financial records.  Even if it’s as simple as writing it down in a notebook, you want to know where the money is coming from and where it is going to.  Did everyone pay their maintenance?  Late fees?  Any special assessments?  Have the bills been paid?  There is insurance, utilities for the common areas, possibly snow removal, exterminators, handymen, an accountant.  Did you know that condo associations have to file an annual tax return?  Someone has to do the paperwork.  As much as Grandma tried, you need real books and records.

Why, If You Own a Hoboken Condo, You Should Care

You Will Need Records To Sell Your Condo

Remember that a buyer is going to ask for these records.  Hoboken buyers want to see how a condo building is being run.  They want to assess the risk of maintenance increases and special assessments in the future.  Has the condo association done renovations?  For example, if the roof been replaced or common areas redone, showing that to the buyer and being able to account for how big (and small) items are paid for helps you sell your condo!

Buyers Will Want Your Condo More Than Other Hoboken Condos for Sale

There are literally hundreds of condos for sale in Hoboken at any given time.  With so many units competing with yours, do you think a buyer is going to choose a unit in a well run condo with books and records showing the history of the building and its finances or a condo where Grandma just pays the bills as they come and can’t find the bank statements when asked?  Buyers – here is a tip:  when a building is professionally managed, there will be a sign in the lobby of the building with the name and contact info for the management company.  Look for it when you are out looking at condos.

Too Much on Your Plate – Not Enough Time For Condo Business?

Hire a management company.  There are lots of them that do a good job.  They are not very expensive.  They will add value to your condo.

The board still has to decide on a budget and only the board can decide on things like how much maintenance charges should be or whether to incur any significant expenditure.  Someone from the board will also keep minutes of the meetings and they can be emailed to the management company for record-keeping purposes.

There are lots of more little things a management company can help a condo association do.  For example, every time a unit is sold and there is a mortgage, someone from the condo association has to fill out a questionnaire for the bank.  The management company does this.

Why A Well Run Hoboken Condo Pays for Itself

When it is time for you to sell, you can advertise to potential sellers that you have a “strong condo association”.  Having a “strong condo association” and “professionally managed building” are very big selling points in the Hoboken condo market.  It is equally or more important than having stainless steel appliances.  Don’t kid yourself, the days of Grandma running the building are over.  Do yourself a favor and get your condo in order.

Posted by Lori Turoff | Currently 8 Comments »

2008 Mar 13th

Learn The Little Known Dangers Of Small Hoboken Condo Buildings

Would You Buy a Condo in A Building With Only 3 Units?

If so, you better keep reading. Hoboken has very few co-ops. Most units in Hoboken are condos. A condo building is run by the condo association. The condo association is made up of the unit owners. Each unit owner has a vote. Sometimes, that vote is proportional in relation to the size of the unit owned. Other times, it is 1 vote per unit. So what’s the problem with that, you ask?

Hoboken has many older 3 and 4 story homes that have been converted into 3 and 4 unit condos. Let’s say you’re about to purchase a unit in one of these 3 unit buildings. You would own 24% of the total square footage of the building, your upstairs neighbor owns 24% and the family downstairs in the duplex has 52% of the total. So your vote is worth 24%, the upstairs vote is worth 24% and guess who controls the building? Or the same owner owns two floors and now the third floor unit is for sale. Each condo unit gets one vote. Again, your soon to be neighbor makes all the decisions.

Why Should You Care?

Hobokens Best DogsLiving in a condo building requires cooperation among unit owners. It also requires decisions to be made that effect everyone. Think about who decides how much the reserve fund should be, whether special assessments will be imposed or whether maintenance fees ought to be increased, and if pets are allowed. When one unit owner has a controlling interest, all these decisions can be made by that owner. What if you prefer to live in a well maintained, clean building but your neighbor could care less? If they decide how the condo fees are spent they may not be willing to repair the roof, paint the common areas, clean the hallways or install new lightings. Owning property requires maintenance and upkeep. Improving property costs money. If you’re not on the same page as the neighbor with the controlling vote, you have no recourse except to make improvements and repairs at your own expense. Or you may have a really difficult time selling when your building looks like a money pit.

Even Under The Best Circumstances, How Big Is Your Safety Net?

If you and your neighbors all get along famously and agree on exactly how your condo should be kept and financed there is one more thing to consider. When you purchase in a condo building with 10 or more units, not only is the governance of the condo association likely to be more of a democratic and participatory process but there are more unit owners chipping in to handle maintenance costs and repairs when needed. Many small Hoboken condo buildings have very meager reserve funds. Often, they are no more than a few thousand dollars. Smaller buildings are more commonly self managed. They tend not to have regular meetings, don’t keep minutes, and sometimes have no budget. Of course, these are all items your attorney should be checking into during attorney review. Unfortunately, it is often overlooked.

3 Unit Hoboken CondoHow to Protect Yourself

Are all small Hoboken condo buildings to be avoided? No – some of them are fine. They have attentive owners who run the association properly or pay a management company to do much of the work. There are condos in Hoboken with smart unit owners who have established adequate reserves and prepared a realistic budget. The voting rights in some small Hoboken condo buildings are allocated 1 vote per unit specifically so that no one unit owner controls everything. This is set out in the condo documents – the certificate of incorporation and the bylaws. The important lesson is that you ask the right questions before deciding to make an offer on a condo unit in a small building. Know what you’re getting into before you buy.

Posted by Lori Turoff | Currently Comments Off on Learn The Little Known Dangers Of Small Hoboken Condo Buildings

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