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Condominium Ownership Is Becoming the American Nightmare

Flickr / Philip Pessar.

Many homeowners who have bought into the American dream by purchasing a condominium are now regretting that decision, as some find themselves unable to sell or rent their units, while others face court battles with investors trying to force them out of their homes.

Condo boom gone bust
Like other types of housing, condos experienced buyer popularity during the housing boom. But the housing crash put an end to that party, too, and numerous condominium owners are still being negatively affected by the housing crisis. Many are finding themselves stuck as stringent lending regulations make selling nearly impossible – even as condo rules stop them from renting their homes as a stopgap measure.

Part of the problem concerns changes made by the Federal Housing Administration over the past few years. In an effort to protect taxpayers from risk, the FHA has tightened condo lending rules to the point where obtaining a mortgage for such a purchase is almost impossible.

Because the FHA rules apply to the entire development, even buyers who would qualify for such a loan won't be able to get one. FHA loans are often used by first-time homebuyers, a group particularly apt to buy less-expensive condo units as a starter home. Though other types of credit are available, these potential buyers may not qualify. 

Some owners try to salvage their soured investment by renting their home, but often run afoul of condo board rules on the subject. Many developments only allow a certain percentage of units to be non-owner occupied, often because financing options will be much more restrictive for buyers if too many apartments are rented. But, that rule can backfire, essentially dampening prices in the entire complex when prospective buyers realize that they won't be able to rent their unit if the need arises. In addition, condo prices can be depressed if desperate owners need to sell the unit at fire-sale prices, just to be free of the problem. 

Investors give owners the boot
In Florida, some condominium owners are suing a large group of investors who bought their condo building, and now want the individual unit owners out.

Madison Oaks was originally an apartment complex, but was turned into condos in the mid-2000s by developers looking to cash in on the southern Florida condo craze. Fewer than 20% of the units sold before the crash, while the rest became rentals. Now, an investor group has purchased the complex, and wants to turn it back into leased apartments. 

With an 80% majority vote, they may be able to force the owners to sell at a loss. The owners paid high prices right before the mortgage meltdown, and condo prices tanked. Now, the rental market is booming, but the investors are offering the owners only a fraction of what they paid right before the crisis. 

While the luxury condo market seems to be making a comeback, the owners of more affordable units seem stuck in limbo – or worse. For many of those who had hoped to use a condominium purchase as a starter or retirement home, the housing crisis continues – for some, seemingly without end. 

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Read/Post Comments (10) | Recommend This Article (113)

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  • Report this Comment On June 15, 2014, at 5:21 PM, dgdbuy58 wrote:

    This article is grossly overexaggerated. A hand full of condo owners will always have issues. Most are due to personal problems. This article takes vague info from a few condo owners and trys to make it a big deal.

    I have owned and lived in a Florida condo for 16 years and have never heard these problems existing on a large scale. These same problems can happen with single residential homes.

  • Report this Comment On June 15, 2014, at 7:07 PM, single07 wrote:

    Think the article hones in on condos built during the time period of the mid 2000's, when units that were built or partially built out didn't sell. Clearly there are problems with financing a condo structure regardless when it was built because the asset is dependent on all units and not just the purchased unit. This puts more focus on the financial accountability of the association, and its effectiveness in providing oversight over the property. They are definitely a more difficult property to appraise and finance.

  • Report this Comment On June 15, 2014, at 7:53 PM, ralphrides wrote:

    Back in 1985 when interest was 20% condos were being sold as substitutes for a house with land. resisted that trap, no one i know even broke even on the condos, all sold at a 20 to 50% loss. i sold the house and land even at those inflated rates at a 5% annual gain plus the improvements made. bottom line stick to buying a home with land, it will pay you back in the end.

  • Report this Comment On June 15, 2014, at 10:37 PM, David1776 wrote:

    These may be problems in some places but not in Winter Haven, Florida where we live and own a condo. There is inventory here and you can get a descent place $40 - 90,000. Most of these properties were built in the 1970s and 80s when they built things bigger and better. Large bedrooms, 2 or more baths, scenic views (many here have lake views this city has 50 lakes within the city limits. In addition to being large, reasonable in cost maintenance fees are are also reasonable. We pay $255/month. We are homesteaded and our property taxes (city, school and county) are $220/year! Large pool heated year round, gated, covered parking, large grocery shopping 4 blocks away and there is an 8 acre landscaped park with trails and exercise equipment a block away. We've lived here over a decade and have no regrets. All the extra money goes for retirement activities, travel etc. We're not strapped worrying about the kinds of stuff outlined in this article. Winter Haven is the place from our front door Disneyworld is 30 minutes away both Orlando and Tampa airports are about 45 minutes away with reasonable flight to everywhere including out of the country. AMTRAK is 2 miles away with 2 trains north and south per day. Come to Florida you will love it here!!

  • Report this Comment On June 15, 2014, at 10:58 PM, MPA2000 wrote:

    Seems odd that anyone can make an owner move out of their house once you pay for it.

  • Report this Comment On June 15, 2014, at 11:04 PM, Richard233 wrote:

    They need to explain how, exactly, the investment company can force them to sell, it makes no sense that they would be able to legally do that.

  • Report this Comment On June 16, 2014, at 2:58 AM, AnotherDude2 wrote:

    @MPA2000 @Richard233 Read your condo docs. You'd be surprised what's in there, including clauses that cover selling off the property for commercial purposes, by forcing the minority to sell. Check your condo docs for the exact bylaws.

  • Report this Comment On June 16, 2014, at 9:06 AM, JoeB0401 wrote:

    Another challenge with condos: in this economy, many residents don't pay their HOA fees. Subsequently, lenders don't approve loans for buyers interested in these properties due to the inherent risk associated with non-payment of HOA and legal issues that affect that entire community. I have also read (FL condos/HOA communities) that disburse non-paying HOA residents' amounts among the rest of the (paying) community, essentially making the other residents responsible for the non-payers. Bottom line: read what you sign when you purchase any property!

  • Report this Comment On June 16, 2014, at 9:19 AM, RobertInAz wrote:

    Just bought a condo in the DC area last year:

    Cost: $110K (w/covered secured parking).

    Mortgage PITA: $545

    Condo Fees (all utilities): $420

    Cost to rent: $1350. I struggle to see a better investment for my down payment.

  • Report this Comment On June 16, 2014, at 10:39 AM, basha0810 wrote:

    All a condo is, is an apartment. I'd never purchase one. The association fees, depending on where the condo is, are outrageous and those fees never go away. Somebody sat back a long time ago and thought long and hard on how they could become rich very quickly and it was then that the concept of condos was birthed. You might own a piece of the building, aka, your condo apartment but that's it. You own nothing outside of those 4 walls and you are literally helpless to your neighbors from hell. No thank you. UNLESS it's an upscale condo in a 5 start place but condos are just a step up from buying a mobile home.

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