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Condo Fun in the Sun?

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Posted On: 12/09/2009

Q: I can buy a Sun Belt condo for $75,000 – the same properties used to sell for $200,000 and up. The local weather is warm, so why not?

A: Some areas of the country are awash in condo units, but what they used to be worth is not a measure of what they’re worth now. If the units are selling for $75,000 then that’s the best possible price today – otherwise sellers would get more. What units used to sell for is ancient history.

You may well find some good condo bargains – but you might also be on the verge of buying a real estate lemon.

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With a condo you have title to your unit and the use of common areas. To support those common areas and pay common costs the condo association requires that each owner must pay a monthly fee.

But if you have a project where many unit owners are not paying their fees then several problems can arise. First, condo fees can skyrocket. Second, you may be subject to a “special assessment” to fill association coffers. Don’t pay and your unit can be foreclosed. Third, facilities and amenities may not be maintained or completed.

If a large percentage of the units are owned by investors then financing may be difficult. Beginning Dec. 7, for example, there will be new HUD rules that are expected to limit the availability of FHA condo financing when a large percentage of units are owned by investors or if many owners are behind on condo fees. Speak with lenders for specifics.

There have been suggestions to liberalize lender standards so that more financing would be available for condo buyers. Reduced mortgage standards would likely increase condo demand, however there would also be more risk for lenders, the FHA and private mortgage insurers, and that’s not a tolerable idea these days.

If Sun Belt condos seem interesting, get an experienced real estate broker to represent you, have a written buyer-brokerage agreement – and be sure to ask lots of questions.

Q: I’m a landlord and have just received a note from my bank saying that an escrow account for a tenant may become “dormant” and that the money could become the property of the state if the account is not activated. What’s going on here?

A: As a landlord in most jurisdictions you’re not allowed to touch the money in a tenant escrow account except in a few situations: to return the money when the tenant leaves, to cover damages or as compensation if the tenant does not pay the rent. You apparently have had a tenant for several years, the tenancy is now on a month-to-month basis and there’s been no need to make an addition or withdrawal, so the escrow account that holds the tenant’s deposit appears “dormant.”

Call the bank and ask for help. They will generally give you plenty of notice and ask you to make a transaction so the account appears active. Maybe add $1. Another idea is to make sure the account is plainly identified as an escrow account and then get a letter from the bank changing the status of the account.”

Oddly enough, the bank has verified that you have correctly handled the escrow money – remember, you’re generally not allowed to use, borrow, withdraw or co-mingle the money without proper authority. The only way the account can seem “inactive” is if the tenant’s money has been untouched.

Q: We’re moving and need to sell. We know like homes have sold for $450,000, but we want a broker to list for about $50,000 more to reduce our loss. We’ve spoken to several brokers and none will list at a premium price. Don’t brokers get bigger fees when homes sell for more?

A: You have a market where values have fallen – otherwise you wouldn’t have a loss.

Savvy brokers are not going to run-up marketing expenses to list an overpriced home in a slow market. The odds of the property selling are just about zero, so there’s no need to worry about a bigger commission.

Price your home to sell in today’s market or consider renting it. Then you’ll get interest from both brokers and the public.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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