Condo Association Boards Have Duty to Be Transparent

The very word, secrecy, is repugnant in a free and open society, and we are as a people, inherently and historically opposed to secret societies, to secret oaths and to secret proceedings.

-President John F. Kennedy

Transparency is the heart of a board’s ethical standards.  So why would any association keep records and financials secret?  There are many reasons, but the first is power.  Organizations that hoard information have all of the knowledge–thus, all of the power.  Secrecy stands to maintain their powerful status quo. Board members may also suffer from an exaggerated sense of their mission.  They may forget their function is simply administrative.

A well run board should make transparency a firm priority. Florida attorney Jean Winters observes some boards are defensive.  “It is sad, but true, that most homeowners don’t care about seeing records unless they suspect something is wrong. So when boards are asked for records, a common response is evasiveness,” stated Winters.  “Unfortunately, when that occurs, there often is something wrong.”

Fear may be a motivator as well.  Some boards fear having their actions criticized noted Virginia architect Amy Reineri.  Boards fear someone may find something in the records to sue them for personally–or that they may be accused of doing things improperly. “When you remind them that not allowing review of their records is a legal violation, it simply makes the fear more concrete in their minds that you know more about how they should be conducting business than they do–and they will get in trouble if you see the records,” observed Reineri.

Another extremely prevalent reason is very simple lack of knowledge.  Some boards simply do not understand the legal requirements and their duty to provide records to the owners. Ignorance of the law, however, is no excuse.  Training is what is most needed.

“Most people mismanage their own money so, when they are elected to HOA boards, they mismanage the HOA’s money.  They are secretive because they are embarrassed,” noted San Francisco homeowner Daniel Howard.

All too often, association secrecy results in needless and costly litigation. Gary Palm, attorney and Emeritus of Law, University of Chicago Law School professor, sought production of his association’s financial records when certain issues became increasingly suspect.  The board refused to comply.  After a 10 year court battle, he finally won. In Palm v. 2800 Lake Shore Drive Condominium Association, # the court came down strongly on Palm’s side and granted him substantial attorney’s fees–nearly $100,000.

 Sunlight is the best disinfectant. 

-U.S. Supreme Court Justice Louis Brandeis

Keys to Transparency:

• open communication
• open records
• open voting
• open spending
• secured open web portals

Florida’s nickname is the “Sunshine State” so it’s no wonder it has a “Sunshine Law”–an open government law.  What does it mean to hold a meeting in the “sunshine?”  Basically, Florida’s Sunshine law requires governmental agencies–including community associations–to hold their board meetings in an open and transparent fashion.  Boards of directors must not meet in the shadows. They must follow the law and not hold meetings behind closed doors.

The general exception is when the board directors need to meet with the board’s attorney to seek legal advice with respect to proposed or pending litigation, or, if the board is meeting to discuss employee and personnel matters.

All associations should operate in the “sunshine” and let their members know when, where and why the board is meeting and adhere to open meetings requirements.  One recent disturbing trend is directors that hold meetings via Skype or in a private chat room–or conduct business among themselves via email.  These are clear and notorious violations and do not conform to open government laws.  Again, directors should make decisions at an open meeting where owners can view firsthand the business operations of their association and how their money will be spent.

The following documents should be available to owners for inspection:

• all financial records,
• contracts, including the management contract,
• minutes of both member meetings and board meetings,
• names and addresses of the unit owners and their respective undivided interests in the common elements.

(Note that communication with legal counsel pertaining to pending litigation, contracts being actively negotiated and information that pertains to personnel matters should be excluded from owner examination.)

Financials should be disclosed at each board meeting. Approval for the expenditure of funds should always be a resolution of the board in an open meeting. (That means any association money spent should be voted on at the meeting by the board directors in front of all the members.) Contracts–including garbage removal, management, maintenance and landscaping to name a few–should also be voted on and approved in an open meeting of the board. Further, the vote should be recorded in the minutes and become a permanent record of the association.

If you believe that your board is not acting property, you can demand to inspect the minutes of their meetings and the records.  “You must allege that you suspect mismanagement, waste or misconduct and then the board is required to allow you to look at the minutes,” noted New York attorney Steve Wagner.

“The by-laws may also provide that you have the right to inspect the “books and records of account” which will let you look at the financial records of the condo.  If the board or the managing agent does not let you look at the records after a proper demand, you can compel them to provide the minutes and financial records through expedited court proceedings,” stated Wagner.

Insurance expert Joel Meskin notes that the key to successful board management is communication.  “Mystery is one of the board’s worst enemies as it only exacerbates membership concern and mistrust,” states Meskin.  The challenge of volunteer boards is that they often lack experience and communication skills.

Attorney Winters further notes, “Each board member is equally responsible and liable for the association affairs.  I cannot think of one good reason why any board member should not have access to records “at will,” as long as protections are in place to preserve the integrity of the records.”  

If a board is hoarding information and proper demand has been made for documents, one powerful tool is to copy both the association’s attorney and the association’s insurance carrier–via Certified Mail–advising them of the improper board behaviour.  If they investigate and find that an association’s directors are acting improperly, they can address the impropriety or choose to terminate their services.  Further, the association may be at risk of losing insurance coverage. Director’s and Officer’s insurance won’t cover them if they break the law. (The insurance carrier will wonder if they are ignoring state statutes, what other issues are they ignoring?) The association, although not for profit, is a business and must operate in a business-like manner to ensure protection from any insurance claim or litigation.  In many states, condominiums and HOAs are governed by separate legislation.  So not all homeowner associations have specific legislation pertaining to records inspections.  Many states such as Ohio and Florida have recent legislation that provides HOAs with similar rights to records inspection as existing condominium law.  Check your state statutes as it pertains to the type (condo, co-op or HOA) of property you own.

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Secure Community Web Portals

Some associations have exceedingly transparent secured websites where owners can go for community information.  Quick 24/7 access is available to owners, board members, board directors and committees. Some associations and property managers use an integrated and secured community portal such as SenearthCo. Senearthco allows the poster of documents to assign levels as to who can view a document, public, owner, or board directors only.  Communities that utilize such software can have a user-friendly web presence at a fraction of the cost of developing a traditional website.

The benefits of utilizing a community web portal include:

1. Maintenance requests can be handled smoothly with owners, service providers and property managers staying connected.
2. Messages can be broadcast with ease.  The board can communicate with owners via email or USPS.
3. Documents are made easily available to the owners, including financials, meeting agendas and minutes, board calendar and newsletters.
4. Accounting can be integrated.
5. Management reports can be seamlessly integrated.
6. Shopping for vendors and service providers can be streamlined. A request can be created and the association can have a complete history of every job.
7. Polls, surveys and voting information can also be utilized.
8. Cost savings to associations can be substantial compared to doing things the way they were done in pre-Internet days. More and more people seek advanced, streamlined technology to receive information.

Many well-respected community managers and attorneys will refuse to work with a secretive board as it creates potential liability for all involved.  Some even try to educate the misled board members.  Unfortunately, there will always be the attorney or manager who looks the other way when the board of directors acts improperly.

If a board refuses to be open and “get with the times,” experts agree that the best course of action when dealing with secretive directors is to take over the board and elect new members.  It’s not easy, but it is possible with persistence and organization.

A veteran real estate broker and appraiser, published author and national speaker on real estate issues, Sara Benson, CRB, ABR, is president of Benson Stanley Realty in Chicago. Email: BensonStanleyRealty@gmail.com. www.bensonstanley.com Telephone: 312-337-4600

10 Steps to Relief from Low Appraisals

Appraisal Form 1004

Since 2007, real estate values across the country have slipped dramatically.  Some experts believe that in addition to tighter lending regulations and the high rate of foreclosures, faulty appraisals have contributed to the erosion of property values.

One Las Vegas broker owner, Tim Kuptz of ReMax Advantage observes, “Appraisers are killing any recovery in sight. The concept of free trade is an illusion as appraisers—not the public—are setting the market.”  Mr. Kuptz’s sentiments are echoed by brokers nationwide.

As mentioned in a previous article, many experts point to faulty appraisals as a direct result of the poorly thought out Home Valuation Code of Conduct (HVCC) which was enacted in May 2009.  Subsequent to the implementation of the HVCC, experienced appraisers left the industry in droves because of the Code’s “sweat shop” treatment of appraisers.

Although virtually all state licensed or certified real estate appraisers are required to follow the government’s Uniform Standards of Professional Appraisal Practice (USPAP)–a minimum set of quality control standards set for the appraisal industry—many appraisals are now being made by unqualified and incompetent appraisers.

Residential properties are particularly vulnerable to faulty appraisals.  In April of 2010 an Illinois appraiser estimated the rental rate on a “fully-loaded” 3-bedroom, 2-bathroom condominium-quality apartment in Chicago’s Ukrainian Village neighborhood at $1,300 per month. The buyer needed an estimated rent of at least $1,400 per month to qualify for the loan. The appraiser refused to consider additional pertinent data and would not change his opinion. The loan was denied by the lender because the appraiser’s projected rental income was not sufficient to cover the borrower’s debt on the building.

The buyer subsequently switched lenders and received a new appraisal, but the second appraisal also came in low on the rental estimate—only $1,400 per month—however, this was just enough for the borrower to qualify.  After closing, and in less than two weeks on the market, the apartment rented for $1,700. The first appraiser was off by a whopping 31 percent, the second, by 21 percent.

It should also be noted the first appraiser was located 110 miles, a two-hour drive away from the property. The second appraiser was closer—40 miles, or a one-hour drive in traffic—from the property.  Because neither appraiser was familiar with the immediate rental market, both appraisals were erroneous.

In addition to paying $500 for the first bad appraisal, the buyer had to pay another $525 for the second appraisal.  Due to the delays, the borrower ultimately was charged increases in the FHA mortgage insurance premiums from 1.75% to 2.25% of the loan amount, and monthly insurance premiums increases from .50 to .55 percent of the mortgage.  The resultant total loan costs to the buyer for the first faulty appraisal was in excess of a whopping $4,250.

A check with the Illinois Department of Professional and Financial Regulation (IDPFR) revealed the first appraiser had been previously disciplined for no less than seven violations of USPAP competency provisions plus violation of ethics rules—yet as a result of the HVCC, was still performing grossly faulty appraisals.

Commercial properties also are vulnerable.  In June 2010, an appraisal on a Chicago commercial building came in nearly 10% less than the negotiated sales price.  Once again, the appraisal was prepared and signed off by not one, but two, incompetent appraisers. The first appraiser was only qualified to perform residential assignments, not commercial. The second appraiser had been previously disciplined and fined $20,000 by the IDPFR for violations of USPAP.

Gross errors and omissions contained in the report included: (1) incorrect property rights, (2) square footage was under estimated by 20%, (3) sales that did not exist were utilized, (4) “AS IS” foreclosure sales compared to new construction with full developer warranties, (5) 100% of the sales utilized were inferior and therefore, did not properly “bracket” the subject, (6) both Income and Cost Approaches were omitted where the Income Approach was extremely relevant, (7) pertinent and more comparable sales were entirely omitted and overlooked.

Given the current appraisal environment, consumers and practitioners need a defense. Most have no idea how to read an appraisal report, much less protest a bad one.  The Uniform Residential Appraisal Report (URAR) Fannie Mae Form 1040—is used to report appraised values to lenders on condominiums, single family homes, and two-to-four-unit small income properties.  A typical URAR is approximately 20 pages. Commercial appraisals, however, are typically prepared in a narrative style format and can easily reach one hundred pages in length.

So what is the best way to protest a bad appraisal?  By following these 10 steps, consumers and real estate agents alike will be able to refute a faulty appraisal.  The goal is a “Reconsideration of Value” that accurately reflects the current market.

Step 1: Check the appraiser’s qualifications. What category of license does s/he have? Is s/he qualified to perform the appraisal? Has s/he ever been disciplined or fined? Is s/he local or is s/he they driving over 100 miles to get to the property?  Ask the appraiser these questions, then double check the answers online in your state’s professional licensing division.

Step 2: Hire an expert local Realtor—not your cousin Vinnie—to conduct market research.  Realtors have the best access to data and can double check the appraiser’s comparable sales for accuracy. They also can provide fresh and pertinent data the appraiser may have overlooked.

Step 3: Examine the appraisal in detail. Is the data the appraiser reported correct?  Data is often reported incorrectly because of the appraiser’s haste or lack of attention to detail.

Step 4:  Take notes. Starting at the beginning of the report or grid, examine each line item. Point out in detail every error and omission. Add any pertinent data omitted from the report.

Step 5: Gather evidence.  Evidence should include photos, floor plans, plat of survey, assessor’s records, MLS copies of most recent comparable sales, pending sales, and sales that didn’t appear in the MLS (such as for-sale-by-owners;)  and most importantly, written statements from local real estate experts, brokers, agents and/or attorneys.

Step 6: Armed with supporting new data, exhibits and professional opinions—and the flaws contained in the appraisal—write a rebuttal report or ask your Realtor to do so. Title the report “Complete Field and Desk Review of Appraisal Dated _____________, 2010 for the Property Commonly known as __________________, City of _____________, County of ____________, State of __________________.”

Step 7: Clearly state both at the beginning and at the conclusion of the rebuttal report that if the flaws and discrepancies are not addressed and immediately corrected, all involved parties will have no recourse but to report the appraiser to the licensing board for further investigation. Attach all evidence gathered (in Step 5) as separate exhibits in the report.  If the report is prepared by the Realtor, have them attach their professional qualifications—and a copy of their state issued license as the final exhibit.

Step 8: Have the rebuttal report professionally bound.

Step 9: Make a list of all involved parties in the transaction. This will typically include the (1) loan officer, (2) loan underwriter, (3) bank president, (4) buyer’s attorney, (5) seller’s attorney, (6) buyer, (7) seller, (8) the appraisal management company, and (9) the appraiser.

Step 10: Copy all parties on the report—absolutely everyone.

If an appraisal is not true to the market, it in fact, runs counter to the very definition of Market Value as defined by USPAP.  It is a false opinion from a government licensed or certified “professional.”  False opinions—when stated in writing—that damage other parties—are actionable in a court of law.

The HVCC that led to such faulty appraisals was born out of a lawsuit and many real estate experts speculate the HVCC may end as a result of one as well.

A veteran real estate broker and appraiser, published author and national speaker on real estate issues, Sara Benson, CRB, ABR, is president of Benson Stanley Realty in Chicago. Email: Sara.Benson@BensonStanley.com   www.bensonstanley.com Telephone: 312-337-4600

Consumers May Soon See Relief From Faulty Appraisals

Appraised $500,000 Low

Foreclosures and tight money have undermined the national housing recovery for years. But in May 2009, a new Home Valuation Code of Conduct (HVCC) began a silent but powerful wave of faulty and inaccurately low appraisals which continue to flood the real estate market in 2010.

Not a law and not approved by Congress, the HVCC is a “settlement agreement” between New York’s Attorney General Andrew Cuomo’s office and the nation’s largest mortgage finance companies, Fannie Mae and Freddie Mac.

Simply defined, the HVCC is a set of “guidelines” for banks that sell their mortgages to the government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac.  Because the GSE giants now purchase only those loans that comply with the HVCC, the nation’s entire real estate market has been negatively influenced.

The HVCC supposedly was designed to protect consumers: it prevents banks from using their “preferred appraisers” and requires them to use, instead, generic “appraisal management companies.”   But the HVCC was poorly conceived. Its deleterious effects have caused (1) many qualified and experienced appraisers to leave the business, (2) appraisals to be performed by out-of area and unqualified appraisers, and (3) increased buyer’s closing costs.  The huge negative impact on the national real estate industry has served to encourage erosion of real estate values with severe consequences to both buyers and sellers.

A recent nationwide study of more than 100 real estate agents and brokers has charged that under the HVCC guidelines, the appraisal business has hit a new low for lack of quality, accuracy and professionalism.

Tim Kuptz, Broker Owner of ReMax Advantage in Las Vegas observes, “Las Vegas has had stable prices for twelve months now. The stability has been documented in trade publications and MLS statistics, and yet we are getting lowball values from appraisers.”  In 12 straight deals, Mr. Kuptz’s partner recently experienced appraised values coming in below contract prices at an average of 8.1% lower.

Kuptz noted with less than three month’s supply in inventory and despite multiple offers, “Appraisers are killing any real estate recovery in sight.”

What prompted the dramatic change in the appraisal industry? A lawsuit against a lender claiming “fraudulent, deceptive and illegal business practices” by allegedly permitting real estate appraisers to be influenced to increase real estate property values in order to inflate home prices.

Dave Biggers, Chairman of appraisal software giant, a la mode, inc., explains the HVCC originated when New York Attorney General Cuomo filed suit against the lender, Washington Mutual and the appraisal management company, eAppraiseIT. The lawsuit eventually escalated into an investigation of Fannie and Freddie directly.

According to Biggers, in order to stop the investigation into their practices, the GSE signed a settlement agreement with Attorney General Cuomo, agreeing to create new rules which would be embodied in the HVCC. At the last minute, the Office of Federal Housing Enterprise Oversight joined in and signed the settlement, which granted it federal rule status.  The HVCC became status quo for real estate appraisers and lenders.

The primary aim of the HVCC was a good one—to safeguard consumers against inflated home appraisals. A secondary goal was to insulate appraisers from pressure to hit a predetermined number by eliminating the relationships between mortgage brokers or real estate agents and appraisers. In order to achieve that goal, a third party middleman was introduced—a strong-arm “appraisal management company” (AMC) that demanded all appraisers conducting business with Fannie or Freddie hand over their client lists—and take a cut in pay.

While attempting to eliminate unethical practices, the HVCC caused a virtual maelstrom in the real estate industry.  In response to the implementation of the HVCC, one expert veteran appraiser states, “All of the experienced appraisers I know left the profession when they were told they had to surrender their client base of 20 years. Rather than take a 50% pay cut, intelligent appraisers have chosen to leave the profession to the newly licensed appraisers.”

Even if the HVCC were repealed tomorrow, the damage has been done.  Appraisers with 20 or more years of experience will never reenter the business. Once again the borrower will pay the price. “First the borrower is forced to pay 50% more for appraisals. Now they are guaranteed the worst quality appraisals on earth.”

Another New York 45-year old appraiser was so enraged by the HVCC he was arrested last December for threatening to kill Attorney General Cuomo.  His initial bond was set at $500 million.

Illogically, the HVCC mandates run counter to the absolute necessity of appraisers to interact with real estate agents. Appraisers must rely on agents and brokers for accurate verification of the very data they use to complete their appraisal reports.  The HVCC’s “do not touch” hands-off status of the newly “independent” appraiser virtually ensured failure.  One appraiser recently told a Chicago real estate broker, “You can’t talk to me. Do not call me.”

Many educated, well-counseled and motivated buyers and sellers have suddenly found their long awaited appraisal now comes in low—often much lower than the negotiated sales price.

Frequently, healthy owner-occupied homes with full warranties are compared—“comped”—to stripped naked, vacant and abandoned “as is” foreclosures or other distressed sales. Frustrated consumers have little recourse when the loan is denied.

Hope for relief from the HVCC debacle is on the horizon. On July 21, 2010, President Barack Obama signed the Dodd-Frank Act. The purpose of the new legislation is to reform the financial markets. Under the Dodd-Frank Act, the HVCC is officially set for elimination in 90 days. In its stead a new set of “appraisal independence standards” will be created by The Federal Housing Finance Agency.

The standards are expected to be written before September 30, 2010.  The good news is nothing in the standards will prohibit a person with an interest in the transaction from asking the appraiser to consider additional information, provide further detail or correct errors in the appraisal.  The bad news is the outcome is uncertain.

Part Two of this article will feature a step-by-step approach on how to get relief from a low appraisal.

A veteran real estate broker and appraiser, published author and national speaker on real estate issues, Sara Benson, CRB, ABR, is president of Benson Stanley Realty in Chicago. Email: Sara.Benson@BensonStanley.com. www.bensonstanley.com Telephone: 312-337-4600

Critical Contract Contingencies Protect Foreclosure Buyers

The Sterling

January 22, 2010

Chicago’s Hot Foreclosure Market: Part Two

SURVIVING FINANCIAL RUIN WHEN BUYING A DISTRESSED CONDO

By Sara Benson, CRB, ABR

As mentioned earlier, foreclosures, corporate-owned and estate sale properties are sold without any warranties–in “AS IS” and “WHERE IS” condition. There are typically no property disclosures and no survey. The purchaser is buying “at their own risk.”

So how does a consumer ensure protection? Before writing an offer, a few basic questions need to be answered. These questions should include, “Who holds legal title?” During the foreclosure process, there are various stages of ownership and it is important to know who actually owns the property.

“How long has the unit been on the market?” Properties often get re-listed by different Realtors. Get an accurate aggregate number of days, weeks or years the property has been offered for sale—not just the most recent listing period. Also find out how long has the unit been vacant and if the unit was professionally winterized. It is also crucial to properly budget for necessary repairs and any hidden costs.

Once these key questions have been answered, disclosures are necessary. Sometimes a diligent Realtor can get answers in advance of writing the contract in order to weed out sick buildings or poorly run associations, but under all circumstances, make certain the purchase contract is subject to the following disclosures:

• Building’s owner-occupancy ratio, or if new construction, the number of units sold and contract pending.
• Percentage of units within a single project that are more than 30 days delinquent on condo fees.
• Percentage of ownership transferring with the unit and upon what basis that percentage is calculated.
• Any lawsuits or liens filed by or against the condo association or the developer.
• Any municipal notices of code violations against the unit or the building.
• Verification of current assessments, including any special assessments levied, due date and total amount due for the special assessment.
• Name and contact information for the management company and/or association directors.

Finally, once a suitable unit in a well run building is identified, buyers should ask their broker to make the sales contract subject to an attorney’s review and the purchaser’s approval of the following:

• An inspection of the unit AND the common areas by a State Licensed Inspector.
• A property report detailing planned improvements in a conversion, or the specs of new construction.
• Two years of operating budgets including current financial reserves.
• Twelve months of most recent board minutes. (Minutes are typically considered confidential documents and are not published.)
• Condominium declaration and association by-laws.

With proper preparation, a consumer can greatly benefit from the “high risk, high return” maxim—except the risk is substantially minimized–and the reward much greater if care is taken to thoroughly research all aspects of the foreclosure purchase with an experienced buyer broker.

A veteran real estate broker and appraiser, published author and national speaker on real estate issues, Sara Benson, CRB, ABR, is president of Benson Stanley Realty in Chicago. Email: Sara.Benson@BensonStanley.com. www.bensonstanley.com Telephone: 312-337-4600

Surviving Financial Ruin When Buying A Distressed Condominium

January 20, 2010

Chicago’s Hot Foreclosure Market: Part One

By Sara Benson, CRB, ABR

Chicago’s foreclosure market is hotter than a pistol. Ultra-low priced inventory is briskly percolating—and evaporating–as bargain hunters scoop up deals. But among the hundreds of lustrous pearls, are tens of thousands of unsavory swine in inventory. Aside from the visible signs, how does a buyer know the difference?

Without doing Mensa-level homework and performing detailed due diligence, what may appear to be a bargain, can turn into a huge financial albatross. This monster can haunt a buyer for years to come—representing not only a loss of all invested capital, but a future financial drain in the form of special assessments, as well.

The ancient Latin expression “caveat emptor” or “let the buyer beware,” still pertains in today’s real estate market more than ever. Generally, it is the accepted doctrine that controls the sale of real estate after the closing. In the past 3,000 years, times have not changed much.

In the foreclosure free-for-all, very little consumer protection exists. Despite scanty disclosures and government regulations, major risks remain—especially in purchasing a condominium. Many of these hidden risks are overlooked by even savvy investors.

Foreclosures, corporate-owned and estate sale properties are generally sold without any warranties–in “AS IS” and “WHERE IS” condition. There are typically no property disclosures and no survey. Federal and State mandated disclosures cover everything from lead-based paint to mold, asbestos, or any other known property defect including notice of code violations and lot line disputes.

But in a foreclosure no disclosures are available because the “owner” has never occupied the property. This is just one of many reasons foreclosure prices are substantially lower than ordinary real estate inventory. The purchaser is buying “at their own risk.”

Forget about the condition of the walls and airspace within the condominium unit. Focus on the health of the building’s condo association. This is critical in making a profitable investment decision. When purchasing a condominium, the purchaser is also buying into a mini-governmental entity–complete with a President, Secretary, Treasurer and a Board of Directors similar to the Legislature. This government may be as well run as Switzerland, or reminiscent of the worst of Third World countries. So how does a buyer know the difference?

Use caution when purchasing a unit in a newer building—especially anything built since 2005. Due to the recent market downturn, some of these buildings have an extremely low number of owner-occupied units as more and more condos fall into foreclosure. A high ratio of foreclosures will severely affect resale value. With rare exception, conventional Fannie Mae (FNMA) financing prohibits making loans in buildings with less than a 70 percent owner-occupancy ratio (up from 51 percent.) The Federal Housing Authority (FHA) loan threshold, effective December 7, 2009, for owner-occupied units is a minimum of 50 percent

Also exercise caution when purchasing a unit in a smaller building. For example, if one unit in a three-unit condominium is not paying association fees, the operating income of the association experiences a 33 percent deficit. If that same unit becomes a rental, the building will no longer meet FNMA’s 70 percent owner-occupancy ratio for conventional financing. (If the unit goes into foreclosure, the building would then be 33 percent vacant.) This will limit the pool of available buyers—and thus the resale potential–for all of the units in the building.

Buyers should make certain to retain an experienced buyer’s broker who will exclusively represent the purchaser’s best interests, to scour the market, perform complete research and thoroughly analyze data. Without representation, a buyer could easily find themselves swimming with sharks.

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A veteran real estate broker and appraiser, published author and national speaker on real estate issues, Sara Benson, CRB, ABR, is president of Benson Stanley Realty in Chicago. Email: Sara.Benson@BensonStanley.com.  Web Address: http://www.bensonstanley.com Telephone: 312-337-4600