Apartment house with a few condos - worst that can happen

Started by TashinaK • 5 replies • 1509 views

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TashinaK (Arizona)
Posts: 2

Posted:

Hi everyone,

My basic question is - what's the worst that can happen?

We own a condo that we rent to my parents. We bought it a couple years ago, and are in a good financial position with it as it has gone up in value significantly. When we purchased, I believe about 40 our of 230 units were condos (it was a condo conversion in the Phoenix area that stopped when the housing market tanked so they kept most units as apartments). Currently there are 23 condos and the rest are apartments. Of course, this means we are in declarant control with no hope of having a vote on anything really. We understood that and that there were risks.

The property is under new ownership as of a couple months ago, and the new owners have been taking good care of the place, so we haven't been concerned. Today we got a close to fair market offer in the mail from them to buy our condo (which we don't particularly want to sell, mostly just for the hassle/cost of moving my parents around again). There were a couple lines in the letter (which was from their realtor) stating that the place was nearing 30 years old and this is when places typically get more expensive, etc. Hard to say if this was just stating a fact or a thinly veiled threat that they were going to start raising fees.

My question is - can they just do virtually anything they like or are there limits? I can take a look at the HOA rules, but my assumption is that they might already have changed them, or could with a wave of their magic wand since they have all the votes. Can they raise the fees per month from $200 to $2000 if they felt like it? Could they give us a special assessment equal to the cost of our unit unless we sell to them? What's the absolute worst they can do?

One small extra bit of info, is that there are two HOAs really as this is a bunch of condos/apartment houses around a lake. Each has their own HOA and then there is another for the whole lake community. I haven't looked yet if that larger HOA is connected in the sense that they have any rules governing the other HOAs, but we do pay fees separately to the two.

I looked briefly at the Arizona statutes but don't see any laws of any particular use to me. I was hoping you guys might be able to point me in the right direction - More research? Lawyer? Get the hell out? Don't worry?

Thanks in advance.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Read your documents. It has all your answers.

Former HOA President

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By TashinaK on 04/02/2013 11:55 PM
There were a couple lines in the letter (which was from their realtor) stating that the place was nearing 30 years old and this is when places typically get more expensive, etc. Hard to say if this was just stating a fact or a thinly veiled threat that they were going to start raising fees.

It was likely just a sales tactic to get you to sell.
Just as vehicles cost more to maintain as the mileage gets higher, buildings get more expensive to maintain the older they get.

One thing to consider would be the status of your Associations Reserve funds.
If there isn't enough money to cover scheduled maintenance, repair and replacement of capital components, there may be a special assessment or increased annual assessments in your future.

Quote:

Posted By TashinaK on 04/02/2013 11:55 PM

My question is - can they just do virtually anything they like or are there limits? I can take a look at the HOA rules, but my assumption is that they might already have changed them, or could with a wave of their magic wand since they have all the votes. Can they raise the fees per month from $200 to $2000 if they felt like it? Could they give us a special assessment equal to the cost of our unit unless we sell to them? What's the absolute worst they can do?

As Melissa said, most of these answers will be contained within your governing documents.

Decisions of the Association are typically done at the Board level. Since it's likely that the Declarant is still appointing/electing the individuals they desire to sit on the Board it is also likely that they control the votes of the Board as well as the votes of the membership.

They will have to go through the procedures (call meetings, send notices, hold an actual vote, etc.) but since, per your posting, they control the votes they will likely be able to do whatever the governing documents allow (including amending the said documents).

So yes, if needed, they could raise assessments or call for a special assessment to pay the expenses of the Association. This is why I suggested that you look at the Reserve Funds of the Association. If they are not enough to cover expected capital repairs (roof replacement for example) then you might want to weigh that fact when considering their offer.

Quote:

Posted By TashinaK on 04/02/2013 11:55 PM

I was hoping you guys might be able to point me in the right direction - More research? Lawyer? Get the hell out? Don't worry?

Answer, more research.
Then you can make an informed decision.

For info on Reserves see this thread: Subject: Reserve Studies/Funds 101

For AZ Statutes on Condominiums see: http://www.azleg.state.az.us/ArizonaRevisedStatutes.asp?Title=33
Scroll down to Chapter 9 and read 33-1201 to 33-1270

For AZ Statutes on Nonprofit Corporations (as most Associations are incorporated as non-profits) see http://www.azleg.state.az.us/ArizonaRevisedStatutes.asp?Title=10
Scroll down to Chapter 19

To better understand how to interpret statutes see this thread:
Subject: How to read a statute (law)

To check and see how your Association is incorporated, do a search on AZ Corporation Commission website:
http://starpas.azcc.gov/scripts/cgiip.exe/WService=wsbroker1/main.p

Hope this helps,

Tim

GlenL (Ohio)
Posts: 5,491

Posted:

Why not sell with the stipulation that your parents can continue to rent the same unit? It seems like a win-win to me, you get your money out and you don't have to move your parents.

Studies show that 5 out of 4 people have problems with fractions

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Quote:

Posted By GlenL on 04/05/2013 11:11 PM
Why not sell with the stipulation that your parents can continue to rent the same unit? It seems like a win-win to me, you get your money out and you don't have to move your parents.

I would explore what Glen has suggested.

TashinaK (Arizona)
Posts: 2

Posted:

Still doing research on this. Latest news is that it does look like they intend to disband the HOA and turn the rest of the condo units into apartments. We haven't heard this officially - just rumor. My mom has the latest copy of the HOA docs, so I have to go over there soon and pick them up and read through them. She read me the disbanding part and it seemed to be pretty short and sweet about the option to disband if 80% of the votes were in favor. I'm not sure without reading the docs how much time they'd have to give us and whether we have to live with their appraisal etc (even though I think it's not that far off). They are willing to rent back to us for awhile.

I also want to call their realtor and see what she wants to tell me. I'm not as clear as I'd like to be on next steps even if we do want to sell - like whether we need a lawyer to represent us, etc. I don't think we need a real estate agent if we already have a buyer but it is a strange situation. I'm used to being represented in transactions like this.

The main reason for not renting on a longer term basis is that the purpose of buying in the first place was to stabilize the price they'd have to pay on a fixed income. I guess rents have already gone up there a couple hundred a month in the last couple years. We were trying to charge them the lowest "fair market value" price we could for as long as possible, and then probably stop claiming it as a rental income property eventually and just rent it to them for whatever we like (to hold it steady). Also, where we are, the prices have gone up more than 20% in the last year (and that condo is up more like 80% in 2 years) so it's probably still smart at this point to lock in a purchase price on some property for them and figure that it will likely be worth more in 10+ years.

Also, they do want to feel like they are in a place where they could not be forced out - ironic, since we picked exactly the wrong place for that. But since they stopped selling units during the housing crisis there, we made the wrong bet that they would go back to selling off the rest of them as condos once the market turned around. Instead, they ran out of money and sold to a large company that runs apartment houses around the country and thinks having some people in condos in their apartment complexes is a pain.

Our backup plan at the moment is to invest a bit more money and buy them a single family home in a 55+ community.

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