Litigation happens, right? Well, how does pending litigation impact a condominium association? The truth is that sometimes lenders will not lend on a property when there is current litigation against the association – depending on what the lawsuit is of course. The lender’s concern is that a substantial settlement will ultimately force the HOA into bankruptcy because insurance payouts do not cover the cost of the settlement.
I was thinking about this because there is a complex right now in the Sacramento area (Fair Oaks) that is facing this very situation and it’s been more difficult for sellers because lenders have seemed hesitant on making loans on properties in the complex right now. The litigation in this case involves construction defects in the common areas and actually has nothing to do with the actual units (built in 2007 – very nice).
Action Steps & Wisdom:
1) If you are buying a condominium in the Sacramento area, do your homework to make sure the HOA does not have any big litigation that might impede lending. Also, make sure the association is not on the verge of bankruptcy either due to massive vacancy or non-payment of dues (or some other issue).
2) If you live in a complex with an HOA and you are considering filing a lawsuit against the HOA, make sure the issue is worth the potential risk of impacting lending in your entire complex. There is definitely a place for lawsuits, but just know what you’re dealing with. You may be wise to consult with other home owners and do a team approach so you are not the sole individual to bring about the lawsuit. Before proceeding, it may be worth talking to some of the key real estate agents who sell property in the community and an experienced attorney. Disclaimer: This is not legal advice.
Do you have any experience with HOAs and litigation? Maybe you’re a lender, loan officer, real estate agent, home owner or prospective buyer. Share your story below.