Condo Dissolution Sought

S.C. from New Haven County writes:

Dear Mister Condo,

Hello! We are in the process of buying two units that are essentially a multi-family house that was converted to a condo 7 years ago. It is a foreclosure and cash deal because of the condo mess. The owner that let them foreclose has a third house (condo) on the property with a minority interest. Best we can tell, besides the original filing of condo docs, there doesn’t seem to be any financial records, no board, no reserves, nothing. So we were trying to see what our options are because even though the property will be bought with cash, we will have to get a regular mortgage in the next few years. We have a few questions or possibly some suggestions. How hard is it to eliminate an association and what steps would we have to take? If we keep the association, is there a way of eliminating the third unit to prevent confusion? Any thought or ideas would be appreciated. Thank you.

Mister Condo replies:

S.C., smaller condos like the one you are describing can be quite challenging for many of the reasons you have described. I think your term “condo mess” sums up what you have purchased. I am not an attorney and can only offer some friendly advice. As you can imagine, there are lots of legal hurdles in your way and if you have not already done so, you will most likely need to hire a good attorney who can help you navigate the legal obstacles that lie ahead.

The conversion to or from a condominium is done by filing papers with the local municipality. The classification on file is the legal status of the property. A multi-family house is not the same as a condominium in the eyes of the law or the eyes of anyone granting a mortgage so it is important that you pay attention to the details if you plan on mortgaging the property as you say you plan to.

Central to the dissolution of a condominium is the governing documents which very likely detail how the association is to be run and how it may be dissolved. If there are no instructions for dissolution, you will need to refer to state and even local law for guidance. Again, an attorney is going to be well worth the investment as doing this incorrectly could prove quite costly and ineffective. Basically, the association needs to be debt-free and have a unanimous vote for dissolution. If there are no mortgages or lien holders on any of the properties involved, a simple vote of the unit owners can accomplish this. If there are lien holders (like mortgagors), they will also have a say in whether or not the association can be dissolved. Getting mortgage holders to sign off on condo dissolution is no easy feat so be prepared for an uphill struggle if mortgages are involved. However, minutes from the meeting need to be taken and kept for proof should the dissolution vote come into question in the future.

Provided there are no other obstacles from unit owners or creditors to the association, the association can be dissolved and the former multi-family home can once again become a multi-family home. There will be recording fees and such due to the municipality. Once the deed is recorded as individual property, the association is dissolved. Hope that helps! Good luck!