FHA Condo Approval Specialist: Ten Condo Units that Don’t Exist

Ten Condo Units that Don’t Exist

Ten Condo Units that Don’t Exist

fha condo approvalsIn my business of FHA Condo Approvals, I get to see and hear about all kinds of unusual situations about condominiums.  While at a lunch meeting yesterday with an attorney-friend, he spoke about one very interesting issue that was recently uncovered regarding one of his clients, a condominium association.

But first, a little background…

To legally create a condominium, the developer will Declare the condominium project and a certain number of units by filing the Declaration on the town’s land records.  At that time, only the units that are declared are available for purchase because they are now deeded and part of the condominium.  As the project continues to be built, the developer will record amendments which declare additional units.  Once recorded, these units are also now deeded and available for ownership.  This is called legal phasing.

A unit that is not declared cannot be sold because it technically does not exist as separate real property (exclusive of the project that is the developer's property).  Even if a unit (or an entire building of units) is fully completed, it is not exclusive real property until it is declared on the land records.

Ok, enough background (and foreshadowing).  Continue with the story…

In compiling the legal documents for a submission to obtain an FHA condo approval, my attorney-friend noticed that the final phase of the condominium, 10 units, was never recorded on the land records.  To obtain the FHA approval, all units within the project have to be declared.

Not only this, but those 10 units technically do not exist as real property.  No problem, right?  Just record an amendment to declare the units.  Absolutely…if it were a new condominium.

fha condo approvalsHere’s where it got interesting: the condominium is more than 30 years old.  Each of these 10 units have conveyed on multiple occasions during this time to owners who technically don’t own the units because they aren’t real property.

The units aren’t part of the condominium Association nor should they be subject to the town’s taxes.  The lenders have faulty mortgages because the owners cannot grant ownership interest to the lenders in units they don’t own – because they don’t legally exist.

You’re probably thinking what I’m thinking “how was a transfer of title possible for these units?”

In the state where this occurred, title searches are required to only go back as far as the last title insurance policy.  Initially, there must have been a mistake in the title search that allowed the title to convey from the developer to owner #1.  When owner #1 sold to owner #2, the title search only had to go back to the original conveyance, so the first mistake would not have been uncovered.  And so it went on down the line.

Fast-forward 30 years and it is uncovered that owner #10 does not own anything at all!

The attorney said that he is working with the Board to correct this but it may take an Amendment to add these 10 units to the condominium.  This would require the approval of the Association and a majority of the mortgagees to accomplish, which is no small task to say the least!


Magician photo credit: Giulia Bartra via photopin cc

The Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their approvals with FHA and the VA or become recertified with FHA.  We have assisted nearly 200 condominiums and we can help your association.


ReadySetLoan is an active member of the Connecticut and New England chapters of the Community Associations Institute (CAI) and is a frequent contributor to Common Interest Magazine as an expert in FHA/VA condominium project approvals.


Please contact us with any questions regarding FHA or VA condominium project approvals.  You can email me at askeric@readysetloan.com or call me at 404-433-4565. I will be happy to answer any of your questions.


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Comment balloon 7 commentsReadySetLoan Condo Approval Team • May 09 2014 06:37AM


Eric - sounds like something a good real estate attorney would have picked with the title company

Posted by Grant Schneider, Your Coach Helping You Create Successful Outcomes (Performance Development Strategies) over 5 years ago

Eric, I don't know the law in Connecticut, but I believe that it is a common law state. As such, the units in question are "real property,"  just  not legally declared as part of the condominium. I imagine that they are attached to the land, and are not just suspended in air. Any appurtenance attached to the land is "real property." I'm sure the HOA has been collecting "dues" and other assessments from these units. I'd even bet the local government has been collecting taxes.

The oversight is just that, an oversight. It should be able to be corrected administratively without harm to any of the parties. And the rest of the unit owners CANNOT vote to not include the units in the condominium.

Bill Roberts

Posted by Bill Roberts, "Baby Boomer" Retirement Planner (Brooks and Dunphy Real Estate) over 5 years ago

Grant - you would think that would have been picked up at the original conveyance but after that, it would have taken a full title search to have been noticed.

Bill - the condominium is not in CT.  Secondly, real estate is not considered real property until the "bundle of rights" is attached to it which include "possession, control, disposition, enjoyment and exlusion".  In a condominium, the owner owns the unit.  The unit is not real property to be conveyed until it is declared.  Until that point, it is part of the common elements under developer control.  It would be the same if a developer had a large plot of land.  If he built the house on a section but didn't subdivide it, he can't sell the house without selling the entire parcel of land.  He would have to create a separate lot on which the house sits in order to sell it.

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) over 5 years ago

Eric~ a few years back I converted an apartment building to condos (and let me say) it was not easy doing it...& one of the biggest issues was when buyers tried to get a loan it was a nightmare for them...

Posted by Jon Kolsky, Licensed California Real Estate Broker (Kolsky Realty & Management) over 5 years ago

Eric, that is not a good Title Search Policy for the state to have.  You would think researching ownership to the very beginning would be required everywhere (short of God owning it) but that is what happens when assumptions are made.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 5 years ago

Eric, I think you are wrong about your definition of "real property." Even when rules are ignored or not known it doesn't change the reality of what constitutes real property. Common law prevails in all states except Louisiana. The common law supports the notion of "use" trumping laws and regulations. I think you need another legal opinion on this case (other than the one you quoted).

If the current owners had known that their units were not included in the condominium they would be precluded from relying on the common law because they would be guilty of complicity in the fraud. But if everyone  relied on this because they had no other knowledge, then the condominium HOA will not be able to say they have no rights.

I think you need to dig a little deeper. "Fairness" is the basic construct of our law. Your interpretation is consistant with a jurisdiction whose laws are based upon the Napoleonic Code. That doesn't fly here. Please get another opinion.

Bill Roberts

BTW You might explore a "quiet title" action.

Posted by Bill Roberts, "Baby Boomer" Retirement Planner (Brooks and Dunphy Real Estate) over 5 years ago

That does sound like a nightmare, Jon.

George - I agree that this policy can leave the door open for a mistake to carry along for quite a while.

Bill - I am looking into this further.  Thank you.

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) over 5 years ago