Unable to sell unit through FHA

Started by SandraA3 • 18 replies • 1357 views

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SandraA3 (North Carolina)
Posts: 9

Posted:

I am unable to sell my unit through FHA because I had to disclose that the siding was improperly installed on my unit. The contractor who installed the siding walked off the job; a new contractor was hired and cost is twice what the original was. HOA does not have funds to complete project or replace my siding. I had a good offer for my unit, but the buyer could not get an FHA loan due to the disclosure. What recourse do I have?

TimB4 (Tennessee)
Posts: 21,059

Posted:

Argue with the Board to get it completed.
Pay for the repair to your unit yourself so you can qualify.
Encourage the Board to adopt a special assessment to pay for the repairs.

SandraA3 (North Carolina)
Posts: 9

Posted:

Thanks, Tim. Special assessment has to be approved by 2/3 vote. Assessment to complete was voted down. Cost to me would be $20,000; offer on unit was $149,000. I paid $139,000 three years ago and have made improvements since, totaling another $15,000. It was a good offer since other units have recently sold for $101,000-$135,000. Am still arguing with Board.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Just look at other loan options than FHA. There are other banks and mortgages available. They just may not cost effective to all parties.

Former HOA President

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Sandra

Who disclosed what and why?

Thanks

JohnB26 (South Carolina)
Posts: 1,569

Posted:

the seller disclosed known defects to the potential buyer

AS PER THE LEGAL REQUIREMENTS

'knowingly' failing to disclose is actually a criminal action in SC

SandraA3 (North Carolina)
Posts: 9

Posted:

Seller discloses. It is against the law not to disclose, but I do not know the penalty for non-disclosure in NC.

CarolR11 (Colorado)
Posts: 2,563

Posted:

I don't know about your county, Sandra, but I just read that in mine in CA, 30% of the home sales were all cash last month. So maybe you'll land one of them. No matter who, as you know though, you still must disclose the defect and it sounds like you're an ethical person anyway. Good luck to you.

MatthewW4 (Arizona)
Posts: 500

Posted:

Quote:

Posted By SandraA3 on 06/11/2013 5:20 PM
I am unable to sell my unit through FHA because I had to disclose that the siding was improperly installed on my unit. The contractor who installed the siding walked off the job; a new contractor was hired and cost is twice what the original was. HOA does not have funds to complete project or replace my siding. I had a good offer for my unit, but the buyer could not get an FHA loan due to the disclosure. What recourse do I have?

Quote:

Posted By SandraA3 on 06/11/2013 6:22 PM
Special assessment has to be approved by 2/3 vote. Assessment to complete was voted down. Cost to me would be $20,000; offer on unit was $149,000. I paid $139,000 three years ago and have made improvements since, totaling another $15,000. It was a good offer since other units have recently sold for $101,000-$135,000. Am still arguing with Board.

Sandra,

How badly do you want out? You have a pretty sound cause of action against the board of directors for breach of fiduciary duty. Their duty was to set aside reserves for capital repairs and they apparently did not do so. They further breached their duty by hiring an unqualified contractor who failed to do the work properly. If the board took no action to recover what it spent on the first contractor, there may be another cause of action.

If you want to go whole-hog, you have a pretty good case against all the owners who voted against completing the siding project. The problem with this is you would have to identify each and every owner, name them in a lawsuit, and serve each and every one of them with process.

My suggestion is to consult with an attorney to see what recourse you may have under your state laws.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Sandra

What is the specific issue with your siding that needs to be disclosed?

SandraA3 (North Carolina)
Posts: 9

Posted:

The siding was improperly installed. The material is good, but the installation is not. An engineer's report says the only corrective measure is to tear off the siding and replace it--100%. It is Hardi Plank Siding. Some things wrong include, no starter strips installed, installation with trim nails, studs missed with nails leaving material insecure, 10' siding floated over two floors (against installation code, siding must be stopped at top of ground floor and new piece started on second floor), flashing incorrectly installed or not installed at all. Most items are not noticeable to the unsuspecting homeowner. Luckily, after 5 units were sided, someone saw the problem, and work was stopped. After many meetings trying for a settlement, the contractor left. He was paid for 3 units and payment was withheld on 2. The amount is not worth either party going to court unless suit was for more than spent by HOA or not paid to contractor. This all happened before Oct 2010. The statute of limitations is 3 years.

SandraA3 (North Carolina)
Posts: 9

Posted:

Attorney consultation seems to be the best route. Thanks.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By MatthewW4 on 06/12/2013 1:25 PM

You have a pretty sound cause of action against the board of directors for breach of fiduciary duty. Their duty was to set aside reserves for capital repairs and they apparently did not do so. They further breached their duty by hiring an unqualified contractor who failed to do the work properly. If the board took no action to recover what it spent on the first contractor, there may be another cause of action.

I disagree.

The Association apparently had set aside enough funds initially.

The Association hired (I expect) what they thought was a good contractor. The contractor probably had references, etc.

The Association, upon hearing of an issue with the installation, stopped the work and entered into negotiations with the contractor. Based on Sandra's info, it appears that the membership was kept informed of the issues.

When negotiations failed to have the initial contractor correct the issue, the Board solicited bids for another contractor. Due to the payout to the initial contractor, there wasn't enough funds to pay a second contractor without a special assessment.

The Board brought the issue to the membership. The membership voted down the special assessment. Therefore, the membership decided the work done was acceptable.

I just don't see how the Association failed in it's fiduciary duty.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Sandra

Thanks for the explanatory answer.

A few more questions.

You say the contractor who installed the siding walked off the job; a new (2nd) contractor was hired and cost is twice what the original was and the new contractor was fired as he was not doing it properly.

Was the original contractor that walked off the job the original building (new buildings) sider or one hired for a residing?

Why did he walk off the job?

You say the HOA does not have funds to complete project or replace my siding.

What would be the cost to correct the mistakes the 2nd contractor made?

Is correcting the mistakes of the 2nd contractor the only issue meaning there would be no more siding to do?

Is your association under owner or Declarant control?

Thanks for answering. It better allows me to suggest a plan of action for you versus the stock answer simply hire an attorney and sue. I see those attorneys on TV all the time..LOL

MatthewW4 (Arizona)
Posts: 500

Posted:

Quote:

Posted By TimB4 on 06/12/2013 6:41 PM

The Association apparently had set aside enough funds initially.

There is no information to support that conclusion. The OP said they paid the first contractor for only 3 units before asking for a special assessment to pay for doing the work correctly.

Quote:

Posted By TimB4 on 06/12/2013 6:41 PM

The Association hired (I expect) what they thought was a good contractor. The contractor probably had references, etc.

Again, not enough information. We do not know why they hired a contractor who did not know how to install siding to install siding.

Quote:

Posted By TimB4 on 06/12/2013 6:41 PM

The Association, upon hearing of an issue with the installation, stopped the work and entered into negotiations with the contractor.

Big mistake. They paid the guy for work they knew was substandard and in violation of building codes. Since when does fiduciary duty include paying for work that was done so poorly that another contractor must be hired to rebuild everything?

Quote:

Posted By TimB4 on 06/12/2013 6:41 PM

Based on Sandra's info, it appears that the membership was kept informed of the issues.

Again, not enough information.

Quote:

Posted By TimB4 on 06/12/2013 6:41 PM

When negotiations failed to have the initial contractor correct the issue, the Board solicited bids for another contractor. Due to the payout to the initial contractor, there wasn't enough funds to pay a second contractor without a special assessment.

The board failed its fiduciary duty by paying for work that failed inspection. You do not negotiate with a contractor whose work is faulty and you do not pay him when you know that everything he has done must be removed. Disregarding the workmanship issue, the board was out of money after making a partial payment to the original contractor and had to ask for a special assessment. The board obviously did not have enough money to pay for the work at the original price.

Quote:

Posted By TimB4 on 06/12/2013 6:41 PM

The Board brought the issue to the membership. The membership voted down the special assessment. Therefore, the membership decided the work done was acceptable.

The board had no choice but to bring the issue to the members as member approval is required for the special assessment to cover the board's shortfall in funding.

The issue presented to the membership was not a vote on whether the work was done properly but whether the members would approve a special assessment. The only vote taken was on the special assessment and - no surprise here - the members did not want to dig into their own pockets to pay for necessary and normal repairs. There is nothing in Sandra's posts to indicate that the members were satisfied with the original contractor's work.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Quote:

Posted By MatthewW4 on 06/12/2013 8:22 PM

The Association apparently had set aside enough funds initially. There is no information to support that conclusion. The OP said they paid the first contractor for only 3 units before asking for a special assessment to pay for doing the work correctly.

No, the OP said that work was stopped by the Association after 3 units were done and the 4th and 5th units were being worked on.
The original contractor and the Board entered into negotiations.
The original contractor then walked off the job after the work was stopped.
The Board agreed to pay for 3 out of the 5 units work the original contractor did.

The Board than hired a second contractor to complete the work.
The work to complete the work and repair what was already done was much more expensive and the Board asked the membership for a special assessment.
The membership voted it down.

Quote:

Posted By MatthewW4 on 06/12/2013 8:22 PM

Again, not enough information. We do not know why they hired a contractor who did not know how to install siding to install siding.

Granted, I'm expecting that the Board took bids and hopefully checked out the company. I did post that this was an expectation.

Quote:

Posted By MatthewW4 on 06/12/2013 8:22 PM

Big mistake. They paid the guy for work they knew was substandard and in violation of building codes. Since when does fiduciary duty include paying for work that was done so poorly that another contractor must be hired to rebuild everything?

Well, one example would be when the legal costs would be greater than the cost of hiring a second contractor. I agree that this was a bad decision. However, as you pointed out, we don't know the whole story.

Quote:

Posted By MatthewW4 on 06/12/2013 8:22 PM

Based on Sandra's info, it appears that the membership was kept informed of the issues.Again, not enough information.

I did say it appears.

Quote:

Posted By MatthewW4 on 06/12/2013 8:22 PM

The board failed its fiduciary duty by paying for work that failed inspection. You do not negotiate with a contractor whose work is faulty and you do not pay him when you know that everything he has done must be removed. Disregarding the workmanship issue, the board was out of money after making a partial payment to the original contractor and had to ask for a special assessment. The board obviously did not have enough money to pay for the work at the original price.

We don't know what amount of money they had, what work was done by the second contractor or what steps past Boards took to set aside money for the work.

Perhaps it was a bad reserve study. Perhaps the membership voted down increases in assessments just like they voted down the special assessment. Perhaps they had enough money for other bids but made the decision to go with the initial contractor because it saved money.

To claim this was a breach of fiduciary duty instead of a bad business decision, especially when the membership rejected the special assessment is, in my opinion as bad of an assumption as I believe you believe I made by saying it's simply a bad business decision.

As you pointed out, we only know what has been provided. We can only speculate on the what we don't know.

Fortunately neither one of use has live with the consequences of the Boards decision on choice of contractors or the consequences of the memberships decision on not funding the correction action. I suspect that legal action to prove a breach of fiduciary duty would cost the OP almost as much as paying for the work herself, perhaps more. Even with legal action, with the membership voting the corrective action down, I think the courts would say the board did what they could to correct the issue and ran into a brick wall.

I do know this much. You and I will simply have to agree to disagree (at least until there is more information from the OP).

SandraA3 (North Carolina)
Posts: 9

Posted:

HOA's original assessment based on bid of original contractor.
Five units completed before worked was stopped, but invoices had been paid for only three. Payment was never made on the other two.
Board paid for engineer's report to prove faulty workmanship and specifications to be written for new bids to be solicited.
ALL new bids were at least double of original contractor's bid, and yes, original contractor was selected because the bid was considerably less than all other bids.
That meant remaining funds in original assessment would not cover projected costs, and membership voted down additional assessment.
Project continued with second contractor until assessment funds were depleted.
Project is less than 50% complete. Assessment funds had to be used to pay for project, engineer's study, specs for new bids, legal fees, and there was no income for assessment or regular dues from 5% of the community due to foreclosures.

SandraA3 (North Carolina)
Posts: 9

Posted:

Much of the community has indicated that another such assessment would cause at least as least as many foreclosures as the original assessment.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

This additional information provides a better reason why you have to disclose. Faulty work and a paper trail of legal issues can't be hidden. Plus whoever buys the home would inherit this issue. Especially since the "fix" is not officially been completed. Sounds like you and your other owner may be in the same boat. My question is would it be possible for you two to pay to have it fixed and split the costs? If it is that important you sell. Otherwise I would keep with the HOA and working toward finishing this project.

Former HOA President

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