Condo buyers: How to protect yourself

If your finances are in good shape and you're looking for a long-term investment, this could be a good time to buy. Just use extreme caution and our tips for finding the smartest buy.

By Marilyn Lewis, MSN Real Estate

Depending on your expectations, your financial picture and your location, the current condo-market woes could make for good bargain hunting. Just forget any fantasies of a quick profit. It could be years before prices rise again.

But if you're crazy about a place and you expect to stay put for some time, shop away. Just keep the following tips in mind so you don't mistake a money pit for the deal of the century:


Make a down payment. Don't opt for 100% financing (even if you can still find a lender who will approve it). If your home value drops and you need to sell, you'll be required to come up with extra cash to cover the difference between the selling price and your mortgage, plus an agent's commission and any other fees.

Look for hidden debts. If you're buying a distressed property, whether in a "short sale" (when the seller owes the bank more than the house is worth) or a foreclosure, find out if you'll inherit liens or debts attached to the property -- unpaid homeowners association fees, for example, says Brandon Bickel, a San Francisco Bay Area attorney specializing in condo association law.

Brace for scrutiny from the homeowners association. Some Florida associations hard-hit by foreclosures are demanding that new buyers make a down payment and demonstrate a minimum level of income.


Look for trouble. Get the homeowners association board's minutes for the last two or three years -- the more information the better. Also get any audited financial statements, if available. (State laws govern whether this is required. For example, Nevada requires homeowners associations with more than $150,000 in annual revenue to be audited annually.) Look at the "assessments receivable" to see how much it is still owed in homeowner fees each year. If that amount increases from year to year, the association is having trouble collecting dues, says Tim Cleary, Associated Management's chief financial officer.

Read. Get a copy of the association’s bylaws or CC&Rs (covenants, conditions and restrictions). Even if it's big as a city phone book, take the time to understand them. Get a lawyer to interpret what you don't understand.