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New Owner Wants No Part of Old Condo Association Loan Principal

stephen polinsky on Feb 9, 2009 7:26:00 PM

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Q: I bought a condo just over a year ago. It was difficult to get a certificate for the sale, because there was nonoperating HOA. However, when the Realtor finally got it from an interim property manager, everything was clear; there were no encumbrances on the property.

After I bought the property, a new HOA began making decisions. I then found out that there was a large condo association loan or HOA loan that was taken out for repairs on the property several years before I bought my condo. It was initiated and signed by the property manager at the time (who no longer lives there), and there was no HOA approval in writing. The condo association's loan was, in essence, a signature loan between the property manager and the bank.

The property owners have been paying interest only on the Condo Association loan or HOA loan, and now the HOA loan principal is due. The HOA is asking each owner to pay his or her portion of the loan, which is a special assessment.

Am I required to pay my portion of this condo association's loan since I was unaware of its existence when I bought the condo? If I am not required to pay my portion, who is? I have considered going back to the seller, but I doubt if she would be willing to pay off a loan on property she no longer owns. The title company is also not responsible because the property was not used as collateral on the loan.

 

A: Welcome to the world of community association living. I strongly suggest that you immediately retain counsel to assist and advise you.

There are many parts to my answer. First, does your state require that sellers provide you with certain disclosures about the condition (both financial and physical) of your association? Many states specifically require such disclosures, which would have (should have) disclosed the existence of the loan.

Second, your lawyer - and perhaps the condo association's attorney - should carefully review the condo association loan documents. It is possible that the condo association loan was not authorized by the association in the first place, and thus could be challenged in a court of law.

Third, was the condo association loan or HOA loan recorded on the land records in the county where the property is located? If so, then your title company should have alerted you to this.

Finally, your lawyer should look at the condo association loan documents to determine if, in fact, you as a new owner are responsible to make any payment at all. The general rule of community association law is that a new owner is bound by all legitimate obligations of the association. In this case, however, the loan documents may not "run with the land" and may not apply to you.

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