WASHINGTON DC CONDOS
What buyers should know about purchasing a DC condo or co-op and reviewing DC condo documents.
ABOUT WASHINGTON DC CONDOS
- A condominium isn’t a certain type of building or architecture. It can take many different shapes and forms. Primarily, it’s ownership of an individual share in an owner’s association. The definition of a condo “unit” is defined in the governing documents. It can be anything from a commercial or industrial building to a boat dock;
- You’ll have a deed to the unit, which you will own, and an interest in the common elements.;
- You’ll pay association dues and abide by the rules and restrictions set forth in the CC&Rs.;
- A standard mortgage loan can be used to purchase a condominium;
- Most buyers are familiar with condominiums in Washington DC, but not necessarily with the process of reviewing DC condo documents.It’s important to review your DC condo documents carefully to ensure that the financial state of the association is good, and that you can live with the condo association rules and regulations. Your real estate agent can’t review them for you. Real estate agents are not lawyers or CPAs. It’s up to you to read and understand the association documents, and to ask questions of the appropriate experts when you don’t. If you have questions about DC condo documents, the budget and/or reserves, seek answers from the association and the advice of a real estate attorney or CPA.
For a quicker review, review this synopsis: Synopsis of 2014 DC Condo act Amendment WP Also, in 2014, the DC Condo Act was amended. Amendment to the DC Condo Act
RIGHT OF RESCISSION
It’s the law. The DC Condo Act (reference your purchase agreement) essentially gives buyers the right to review association documents and/or resale certifications for a specified number of days from date of receipt and withdraw from a Washington DC condo or co-op transaction should they not agree with the rules and regulations. In Washington DC:
- New condos are afforded a 15 day right of rescission from the date of receipt of the public offering statement package.
- Resale condos are afforded 3 business days beginning the day following the date of receipt of the resale package.
- Although developers aren’t required to provide a right of rescission for association documents on fee simple products such as single family attached or detached homes, they may opt to do so. Be sure to ask before signing a contract. If there is no rescission clause, try to negotiate one.
- Resale buyers are protected on fee simple purchases by the HOA disclosure in the GCAAR real estate contract. It requires sellers to provide buyers with HOA documents by the 10th day following ratification. The buyer has 3 business days for right of rescission.
WHAT YOUR WASHINGTON DC CONDO DOCUMENT PACKAGE SHOULD INCLUDE
The shortlist, in layman's terms:
- Current budget and financial condition, reserve funds
- Current Bylaws, architectural guidelines and CC&Rs (Covenants, Conditions and Restrictions) that define the rules and regulations for unit owners and co-op shareholders
- Association Fee Breakdown
- Insurance coverage requirements for unit owners and Master Insurance Policy coverage
- Occupation limitations (number of people who may occupy a unit)
- Statement of unpaid fee assessments, special assessments, and/or upcoming assessments
- Records of any pending legal action or judgements by or against the association
- Certification of filing for the association’s annual report to state board (some associations exempt)
- Records of approved alterations to the unit
- Violation notices to current unit owner(s)
Smaller associations and self-managed associations may not offer the same packages as larger, professionally managed associations.
VIRGINIA CONDOMINIUMS
The Virginia Condo Act (reference your purchase agreement) essentially gives buyers the right to review public offering statements, association documents and/or resale certifications for a specified number of days from date of receipt and withdraw from the transaction within that time should they not agree with the rules and regulations or approve of the associations budgetary or finacial data. Right of Rescission in Virginia (these rules can be updated from time to time, so be sure to check for new rules and revisions to old ones):
- New Condos: 10 days from day of receipt Under Virginia Law a purchaser of a condominium unit is afforded a ten day period during which he or she may cancel the contract of sale and obtain a full refund of any sums deposited in connection with the contract. The ten day period begins running on the contract date or the date of delivery of a Public Offering Statement, whichever is later. The purchaser should inspect the condominium unit and all common areas and obtain professional advice. If the purchaser elects to cancel, he or she must deliver notice of cancellation to the declarant by hand or by United States mail, return receipt requested;
- Resale condos: 3 calendar days from date of receipt of resale package.
Virginia Condominium Act Section 55-79.97: The statute as amended states that a purchaser of a condominium unit may cancel a sales contract within 3 days of being notified that the resale certificate will not be available, and the amendments define when a resale certificate shall be deemed not to be available. Specifically, a resale certificate is not available when: (a) a current annual report has not been filed by the unit owners’ association with either the State Corporation Commission pursuant to § 13.1-936 or the Common Interest Community Board pursuant to § 55-79.93:1, (b) the seller has made a written request to the unit owners’ association that the resale certificate be provided and no resale certificate has been received within 14 days in accordance with subsection C of the statute, or (c) written notice has been provided by the unit owners’ association that a resale certificate is not available. Section 55-79.97(F) was also amended to make it clear that a resale certificate need not be provided if there is a disposition of the unit by a sale at an auction when a resale certificate was made available as part of the auction package for prospective purchasers prior to the auction.
New condos in Virginia: Derived from Virginia Register Volume 25, Issue 20, eff. July 9, 2009. Public Offering Statement 18 VAC 48-20-240. Nature of information to be included: A. The provisions of §§ 55-79.90(a) and 55-79.94(a) of the Code of Virginia, and 18 VAC 48-20-210 through 18 VAC 48-20-720 of this chapter shall be strictly construed to promote full and accurate disclosure in the public offering statement and, thereby, to protect the interests of purchasers. B. The requirements for disclosure are not exclusive. In addition to expressly required information, the declarant shall disclose all other available information which may reasonably be expected to affect the decision of the ordinarily prudent purchaser to accept or reject the offer of a condominium unit. The declarant shall disclose any additional information necessary to make the required information not misleading. No information may be presented in such a fashion as to obscure the facts, to encourage a misinterpretation of the facts or otherwise to mislead a purchaser. C. No information shall be incorporated by reference to an extrinsic source which is not readily available to an ordinary purchaser. Whenever required information is not known or not reasonably available, such fact shall be stated in the public offering statement with a brief explanation. Whenever special circumstances exist which would render required disclosure inaccurate or misleading, the required disclosure shall be modified to accomplish the purpose of the requirement or the disclosure shall be omitted, provided that such modification or omission promotes full and accurate disclosure. D. Disclosure shall be made of pertinent facts, events, conditions or other states of affairs which the declarant has reason to believe will occur or exist in the future or which the declarant intends to cause to occur or exist in the future. Disclosure relating to future facts, events, conditions or states of affairs shall be limited by the provisions of subsection F hereof. E. The public offering statement shall be as brief as is consistent with full and accurate disclosure. In no event shall the public offering statement be made so lengthy or detailed as to discourage close examination. F. Expressions of opinion in the public offering statement shall be deemed inconsistent with full and accurate disclosure unless there is ample foundation in fact for the opinion; provided, however, that this sentence shall not affect in any way the declarant’s duty to set forth a projected budget for the condominium’s operation. G. Except for brief excerpts therefrom, the public offering statement shall not incorporate verbatim portions of the condominium instruments or other documents. The purchaser’s attention may be directed to pertinent portions of the declaration, bylaws or other documents attached to the public offering statement which are too lengthy to incorporate verbatim. H. Maps, photographs and drawings may be utilized in the public offering statement, provided that such utilization promotes full and accurate disclosure. Derived from Virginia Register Volume 25, Issue 20, eff. July 9, 2009. 18 VAC 48-20-250. Readability: The public offering statement shall be clear and understandable. Determinations as to compliance with the standards of this paragraph are within the exclusive discretion of the board.
Resale condos in Virginia: The Condominium Resale Package must be delivered by the seller to the buyer after the contract is ratified (signed by all parties) and before settlement occurs. Virginia buyers have that three days to cancel the contract if they don’t approve the documents. Check out these terms contained in the Virginia Condo Act: § 55-79.97. Resale by purchaser. A. In the event of any resale of a condominium unit by a unit owner other than the declarant, and subject to the provisions of subsection J and § 55-79.87 A, the unit owner shall disclose in the contract that (i) the unit is located within a development which is subject to the Condominium Act, (ii) the Act requires the seller to obtain from the unit owners’ association a resale certificate and provide it to the purchaser, (iii) the purchaser may cancel the contract within three days after receiving the resale certificate, (iv) the purchaser has a right to request an update of the resale certificate in accordance with subsection D, and (v) the right to receive the resale certificate and the right to cancel the contract are waived conclusively if not exercised before settlement. If you cancel your transactions under a contingency provision of your contract, or enact your right of rescission, your EMD (earnest money deposit) must be refunded. You can’t waive your right of rescission, nor can anyone remove the right from you, even by contractual agreement. Here’s some of what should be in the resale certificate according to the VA Condo Act: 1. A statement of any expenditure of funds approved by the unit owners’ association requiring an assessment in addition to the regular assessment during the current or the immediately succeeding fiscal year 2. A statement including the amount of all assessments, fees or charges currently imposed by the unit owners’ association and associated with the purchase, disposition and maintenance of the condominium unit and the use of the common elements; also the status of the account 3. A statement about other entities or facilities to which the unit owner may be liable for fees or other charges. 4. The current reserve study report or a summary of it, a statement of the status and amount of any reserve or replacement fund and any portion of the fund designated for any specified project 5. A copy of the unit owners’ association’s current budget or a summary prepared by the unit owners’ association, also a copy of the financial statement for the last fiscal year for which a statement is available 6. A statement of the nature and status of any pending suits or unpaid judgments to which the unit owners’ association is a party which either could or would have a material impact on the association or the unit owners or which relates to the unit being purchased 7. A statement showing what insurance coverage is provided for all unit owners by the unit owners’ association, including any fidelity bond maintained by the unit owners’ association, and what additional insurance coverage would normally be secured by each individual unit owner 8. A statement that any improvements or alterations made to the unit, or the limited common elements assigned thereto, by the prior unit owner are not in violation of the condominium instruments 9. A copy of the current bylaws, rules and regulations and architectural guidelines adopted by the unit owners’ association and the amendments thereto 10. A statement of whether the condominium or any portion of it is located within a Property Owners’ Association (POA) 11. A copy of the notice given to the unit owner by the unit owners’ association of any current or pending rule or architectural violation 12. Certification, if applicable, that the association has filed with the Real Estate Board the required annual report 13. A statement of any limitation on the number of persons who may occupy a unit as a dwelling 14. The resale certificate, once received by the owner from the unit owners’ association, shall be delivered by the owner to the purchaser. The unit owners’ association shall have no obligation to deliver the resale certificate to the purchaser of the unit. 15. Check out all the pertinent info in the VA Condo Act at: https://webapp.dpor.state.va.us/va_laws/condo_act/condo_act.htm And… 1. Ask for a contact at the association if one isn’t notated on the resale certificate or in the condo docs. Call and ask if the information you received includes the latest budget, updates and CC&Rs. You’d be surprised how often the latest information is not included in the standard condo doc package. 2. Get a contact for the management office for future reference. 3. Find out if the association has a ‘Welcome Center’ where you can get fobs, access cards, move-in instructions and registration, pay move-in deposits/fees, pet deposits, pool and parking pass fees, guidelines for the community and community activities and contacts.
RULES OF THUMB FOR ALL JURISDICTIONS
Compliance
Is the current unit owner in compliance with the rules of the association, has he/she any outstanding fines, condo dues or special assessment payments? If so, make sure you stipulate that these be brought current at the seller’s expense and shown as such on your HUD-1 (settlement statement), or you could become liable for them. Ask if any improvements or alterations have been made to the unit and, if so, if they are in compliance with board/association regulations and standards. You want to make sure they’re not in violation, or you could inherit any liability/penalties.
Important Questions
It is important to ask the association or management representative (in writing, and get a written response) if the association is involved in any planned, pending or unresolved litigation. This can affect the ability of mortgage lenders to lend against the property. It is also important to ask about the association’s investor ratio (ratio of renters vs owners), the square footage percentage of commercial property associated with the association (retail components) and percentage of delinquent dues by owners (as well as the length of time they are delinquent). All are subject to percentage caps that can render a building unwarrantable (unlendable). You’ll also want to verify that the current owner is up-todate on dues and learn the percentage of owners delinquent on dues. Ask about planned or levied special assessments as well as major improvements being discussed for the next one to three years. Ask if any improvements or alterations have been made to the unit and if they are in compliance with board/association regulations and standards, obtained the proper permitting if required and were inspected, if required. You will inherit violations and associated fines/penalties if not. Other questions include restrictions for pets, rentals and smoking, as well as the rental cap, if any, and waiting list length. Check to see what the policies and fees are for move-ins and ask about the amount of capital contribution, if any.
Special Assessments
This disclosure should be included in your purchase agreement provisions and your agent likely checked the box that says the seller will be responsible, but make sure. Your lender will request a Condo Questionnaire that should pose this question, also. Ask your lender for a copy. Surprisingly, condo owners are not always aware that there are special assessments pending, so even if they answered ‘no’ to the question on your purchase agreement, it’s important to read the resale certificate package and the condo questionnaire. These are “official” responses. Liens and Judgements During the contract process your agent should have specifically asked about liens and judgements. At any given time, there are a number of developer marketed properties with mechanics liens against them, and privately-owned properties can have these, too. If there are liens against the association and unit, it could make it difficult or impossible to get financing and the payoff of liens and judgements can result in higher condo fees and special assessments. Be sure to get all documentation if there are liens, and take it to your selected title company and lender for review.
Budget
Examine expenditures in the budget, and volume of reserves. New condos often haven’t built up large reserves just from capital contributions, developers often are supressing the condo dues while they’re selling, as well as keeping the budget lean until the homeowners take over the association. There are many reasons for this, but the bottom line is that it’s important to realize that expenses and condo dues are likely to increase-sometimes significantly-when the unit owners take control of the association. This typically occurs when the project is 70% to 75% sold. Check to see if the condo dues have increased, how often, and by how much. Is there an annual cap on raises? In older communities the reserves may have been depleted by costly repairs, unpaid dues, and community expense increases as amenities age and staff and services become more expensive over time. When reserves are low and major repairs are needed, the unit owners are typically assessed for the costs in shares based on the unit size. Does the association have sufficient reserves for repairs? Especially in older condo buildings, this is important. Lawsuits or judgments pending against or involving the condo association can also be a source of condo fee increases and special assessments. Ask for copies of association meeting minutes for the past 6 meetings. Review them for discussions of expenditures, repairs, legal proceedings and other issues that might shed light on the association’s future spending and assessment plans.
Private Transfer Fees
A private transfer fee is typically created by a developer who agrees to add a covenant to the title of every new home in a development, requiring future owners to pay a percentage of the selling price (usually 1%) to a designated trustee for the next 99 years. If the consumer fails to pay the private transfer fee covenant, a lien is placed against their property in the amount of the unpaid fee, plus interest and costs. Before the property can be sold or refinanced, that lien must be satisfied or the property will not be sold. While Private Transfer Fees (“Resale Fees”) have not been common in the DCMA, it is worthwhile to check for this clause in order to fully protect your interests.