Outer Banks Condos - Nags Head Condos - Caution to Buyers
Tuesday, January 26th, 2010| Some condominium projects will not be eligible for loans in 2010. When considering a 2010 Outer Banks Condo for Sale this information is critical reading. Foreclosure condominiums, developer bankrupcy sales and many oceanfront condos are affected. |
Jan 26, 2010 – A Special Note on Outer Banks Condominiums for Sale
Condominium ownership offers some very clear advantages for out of town homeowners, however, lending limitations have recently (Dec 30, 2009) been put in place that may affect your purchase. Although cash buyers are not affected by these changes, we ask that you consider the reasons behind lender caution on new condominium communities before deciding to buy with any source of funds.
New vs Established:
New condo projects typically will have some finished and some future amenities for community ownership and use. In new projects the health of the developer is critical because finishing or maintaining amenities and unsold units will rely on the developers financial health. A developer who is not financially sound may be unable to obtain funds for future planned amenities, or even worse, may be unable to maintain the unsold units and existing amenities under its control.
Established communities where more than 90% of units are already sold to individuals are not subject to these pitfalls. Any individual owners who fall into delinquency are subject to liens by the HOA. If they fail to pay, the HOA has the right to foreclose and force a sale to collect HOA dues. This rarely happens, however, because delinquent homeowners will normally pay to prevent this. Should a lender foreclose on an individual homeowner’s unit, the HOA would be paid through this process before the lender could take clear title.
Worst Case Scenario: Imagine a condominium project whose Homeowner Association is directed and controlled by an unsound developer. Common insurance and developer shares of HOA dues may go unpaid. Any default by the developer on its development loan could also lead to foreclosure of common amenities and developer owned units by the lender. We have seen this happen in Waterside Villages in Grandy in 2009. Unfinished units, streets and pool/tennis facilities were taken over by BB&T and are still held in limbo. Many homeowners there, faced with an impossible situation and with no chance of resale at any price, simply walked away from their homes and were also foreclosed on individually by their mortgage lenders. A lapse in common insurance on any project would prompt an immediate notification of each homeowner’s mortgage company. All mortgages require collateral for the loan to be properly insured creating an overwhelming burden for the homeowner. Remember, “outside wall” hazard and flood insurance (aka The Master Policy) could not be taken out on individual condo units so a small number of homeowners could potentially be forced to cover all unsold units and grounds at their expense.
Threshold for Lending on New OBX Condos: The biggest factors making loans available or not for condo purchases are outlined below. These are subject to change as federal guidelines change, however, they are current Dec 30, 2009.
• Loan to Value must not exceed 90% for primary home occupancy and 75% for second home occupancy
• All Units, amenities and common areas within the project must be 100% complete with no additional phasing
• Non-residential use must not exceed 20% of total square footage (such as retail or office space or amenities such as workout rooms)
• 90% of the project must sold and closed
• 30% combined maximum ownership by various investors
• HOA must be controlled by unit owners NOT developer or lender
• No single person or entity may own more than 10% (this includes bank ownership due to foreclosure on the developer)
The following page will name some specific communities that are potentially affected by these new, stricter requirements. Our hope is that after reading this material our condo buyers and investors will have a better understanding of challenges to newly built condo purchases as well as a benchmark for investing with cash in a new condo complex. The Dean Agency has compiled this information and any of our brokers will gladly discuss it in detail and in reference to specific communities on the Outer Banks of NC.
The Dean Agency recognizes condo ownership as an excellent option on the Outer Banks and in no way discourages condominium purchases. Many of our established communities offer excellent quality of life, sound investment opportunities and are well managed by their respective HOAs. Before purchasing any North Carolina condominium buyers are encouraged to review condo declarations in details, as they are entitled to by NC law. The Dean Agency brokers can provide these documents in advance of any purchase offer as well as exploring the potential for loan difficulties. Because real estate on the Outer Banks is unique in nature we look forward to answering our prospective buyers’ and clients’ questions in detail.
Wise investment decisions are the result of fact finding and carefully weighing options. Your Dean Agency broker is a valuable resource in this process. We look forward to speaking with you.
See you at the beach!
John Dean, Broker in Charge
The Dean Agency
Outer Banks Real Estate Brokers
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Outer Banks & Nags Head NC Foreclosure Homes and Bank Owned Property for Sale. Contact our REO specialists - oceanfront, golf course, luxury bank owned homes & foreclosures for sale. Our Brokers will email current OBX foreclosure list. Bank Owned- REO OBX
