Condos and Lawsuits

Your listing presentation went well.  Very well.  In fact, you got an exclusive on this sure-to-be-a-full-price-offer condo and can’t wait for it to hit the Chicago MLS.  You prepare for your first open-house and your lender offered to help with some flyers about financing and monthly payment options.  And your lender also informed you they just found out about some litigation that has to do with your new listing’s HOA.

Apparently, a roof contractor did some work last summer and the finished product was not exactly up to par.  In fact, the roof leaked and owners complained to the management company.  The contractor was called back to fix the roof and the contractor declined, saying it wasn’t their fault.  So the HOA sued the contractor.  What’s the problem?

Besides the potential roof issue; lenders will stop dead in their tracks approving any mortgage in a condo project with pending litigation.  And it’s not just for Chicago area condos; it’s nationwide.  Why are lenders so picky about lawsuits?  It’s not their money that’s being tied up.

What if the lawsuit required an assessment on all owners to support the litigation? What if the litigation lasted a long time and still another assessment was required? What if these assessments affected the owner’s ability to pay their mortgage?

That’s what lenders are concerned with; future payments.

Lenders will approve a mortgage based upon a debt-to-income ratio at typically 43 percent.  If an approval was issued for a borrower with a 43 debt ratio, what would happen if they suddenly had to fork over another $100 per month to pay all the lawyers?  That new amount could push debt ratios above the magical 43 percent mark.  And even if the assessments weren’t enough to hamper an owner’s ability to pay their mortgage, would future assessments?

And worse, what if the owners paid for all the new lawyers and eventually lost the case?  What happens now with the roof?  More assessments?  More litigation?  The contractor counter-sued for damages?

Regardless of the nature of the lawsuit, even if it seems at first glance to be completely harmless, unless the lender can be convinced otherwise (good luck with that) then the litigation must be resolved before conventional financing can take place.  Occasionally, if all of the costs to bring the issues to par are paid in full and the litigation is only for reimbursement,  then a loan may possibly be offered.

Buyers paying cash? No problem.  Financing ?  Potential big problem.  Knowing ahead of time the status of the association can save a lot of heartache.

Buying a home in Chicago or the Chicago Land? – Know that Real Estate Professionals consistently work with me as their preferred mortgage lending source because I help strengthen and simplify their buyer’s mortgage process! Knowledge gets you home quicker! Increase your success rate with buyers and control your business before you hit the road – connect with me Here.


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