Q: I want to buy a condo & found out there is a lawsuit being filed against the HOA re insurance issue should I walk away?
HOA for the past 12 yrs has been undercharging some units while overcharging some units for the insurance.
That does not make sense since insurance is a common expense. Insurance is not charged to individual units as a separate charge but included in the total of all expenses. The way budgets for condo associations work is the board determines how much is needed to pay all operating expenses for the year and either divides that by the total number of units or it is pro rated to each unit based on square footage, with all units paying a combined 100% of the total expenses. Reserves are then added into this.
While a rumor or comment there is a lawsuit "being filed" is a red flag you probably do want to walk away, it is not proof that one is being filed or one will be filed. Angry owners threatened to sue associations all the time but it doesn't always happen. It's more of a red flag that you have one or more unhappy owners and they can make everyone's life miserable and/or cause everyone to incur a special assessment if there is a lawsuit the insurance does not cover.
If you are going to buy or sell real estate you need to hire a real estate lawyer to represent you because there are so many things that could go wrong and this is just one of so many. Your attorney could find out if the association has obtained the proper reserve studies, engineering inspections, adequate insurance coverage, etc. A real estate lawyer can also make sure there are no clouds on the title or outstanding liens and judgments against the association. This is an example of a few issues.
A: HOA=Bad, all you see and hear on this Q and A sights is the horror stories of HOA related matters, you should always think twice when an HOA is involved, if one is involved in litigation and potentially protracted ones, those are larger assessments and costs to the owners eventually. HOA's also can move faster than anyone related to foreclosures when issues arise and on and on the list goes. While HOA's are very common, you can see I am not a fan (not in the least and I freely admit it), all we see is the headaches on these Q&A forums so I encourage you to move forward with caution, expenses are ever increasing and special assessments/costs are always an unwelcome surprise.
Anthony M. Avery agrees with this answer
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