Condominium Associations

Condominium associations (COAs) exist to administer condominium and other community-owned residential property.

Formation

For condominium properties, where the ownership of the real estate is multiple, the proper legal process begins with the creation and recording of the condominium declaration. The condominium declaration serves as the notice of formation, describes the property, and states a formula used in the allocation of individual interests in the property.

The condominium association as an entity is created under the declaration of condominium and the rights and duties of COAs are set forth with varying degrees of clarity.

Operation

Generally, but not always, COAs are incorporated and governed by a Board of Directors, a Board of Trustees or a Board of Managers who are elected to make decisions on behalf of the association. These management boards consist of not less than 3 persons elected by the residents on an annual basis to terms of 1, 2 or 3 years.

As an operating entity, each association has bylaws, or indentures, that guide the trustees and residents. COAs and their Boards are duty-bound to enforce the condominium declaration fairly and collect and disburse funds in such amounts to provide for the necessities and amenities of the condominium.

Insurance

For all new and established condominiums with more than 20 units, the condominium association is required to obtain and maintain hazard, liability and—where the property is located within the 100-year flood zone—flood insurances.

Financing Considerations

Homebuyers looking to buy a condominium have more than the size of their down payment and credit score to worry about – the condominium project and its association of condominium owners must pass a test as well.

Lenders follow guidelines from the Federal Housing Administration (“FHA“), Fannie Mae and Freddie Mac for condominium mortgage eligibility. Condominiums that are not approved for FHA, Fannie Mae or Freddie Mac financing are known as “non-warrantable” and offer fewer options for buyers or refinancers who need to take advantage of the programs those three organizations can provide. The programs generally require the following:

• More than half of the condominium units must be owner-occupied.
• No owner may own more than 10 percent of the units.
• No more than 15 percent of the owners can be delinquent in the payment of condominium dues and assessments.
• All amenities must be completed if the development is more than 12 months old.

The FHA may have friendlier down-payment requirements, but it has strict guidelines for condominium associations. In order for a given condominium to be approved for an FHA home loan, it must be on the FHA’s list of approved condominium projects, which can be accessed here. Further detail regarding the requirements for FHA-guaranteed mortgages can be found here. Condominium owners may ask their association or management company if their complex is FHA-approved, and if not, request that such approval be obtained to the benefit of everyone. That approval can increase the value of all of the units within the condominium project, which is obviously a benefit to everyone.

Conclusion

The legal issues surrounding the COA can run from traditional real estate questions involving buying or selling property to more complicated questions involving insurance, the nonprofit structure or management of the association itself. The experienced attorneys at Weiss Attorneys at Law have represented a wide range of condominiums associations and we look forward to assisting you with your situation if the need should so arise.