In 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.
Here’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!
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 email@example.com or call me at 404-433-4565. I will be happy to answer any of your questions.
FHA/VA Condo Approval Specialist
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Check out our article in Common Interest magazine on page 19!