Orange County, CA – If you’re buying a condominium you need to check if there’s any pending litigation. Whether frivolous or merited, condominium litigation can ruin your home loan. Most condominium litigation is not serious. Construction defects to the units and common areas are typically covered under the master hazard insurance policy carried by the HOA. However, it’s important to review and understand the details.
Fannie Mae has strict requirements regarding condominium litigation. Specifically, The Fannie Mae guidelines read: “Any project (condo, co-op, or planned unit development) for which the homeowners association or co-op corporation is named as a party to pending litigation, or for which the project sponsor or developer is named as a party to pending litigation that relates to safety, structural soundness, habitability or functional use of the project, remains ineligible.” That’s a mouthful! In laymen’s terms it means that pending litigation can sink your home loan.
Ineligibility for Fannie Mae approval means condo projects are facing an uphill battle. Your real estate agent should inquire with the seller about possible litigation. That’s the first place to start. The listing agent, seller or home owner’s association will be aware of current or pending litigation. Most seasoned real estate professionals know to look into condominium litigation when taking the listing. Your real estate agent should not have too much trouble identifying potential legal issues.
If the condominium litigation is minor and covered by the liability insurance then it can be bypassed. Non-construction related litigation must be reviewed on a case by case basis.
Buying a home is an important time in anyone’s life. It’s very emotional and should be very rewarding. Condominiums can be a fantastic home choice for many families. So, don’t let the additional requirements derail your plans. Just be sure that you have a good team that communicates with you well. You’ll need the team to help you navigate the research and loan process. A good team will spot the hazards early on and share them with you. Then you’ll know exactly what you’re facing. After all, you don’t want to start spending money on inspections unless you have a strong likelihood that the home financing will be approved. You’ll also have the assurance that when it comes time to sell, new buyers will be less likely to face the same pitfalls.