G.S. from New Haven County, Connecticut writes:
Dear Mister Condo,
HELP! A developer purchased a group of apartments and then started to rehabilitate each unit to sell. When the leases were over on the tenants who were renting at the time of the purchase, their place was immediately remodeled and placed on the market for sale. Long story short, the building owners went bankrupt. 62% of the units are vacant and owned by the company. 30% of the units were sold and occupied and the last 10% are people who bought and can no longer afford their mortgage and are in foreclosure or short sale. They lost their FHA financing, so if anyone want to buy a unit it has to be cash.
- A lot of complaints regarding the building not being fixed. Do I have any recourse into having items fixed?
- Will the property ever be turned back into rentals?
- We do pay a home owners association, but there is hardly any money in the reserve account. Therefore the property is being neglected.
- Can this turn into a slum area?
- Will the property continue to decline?
I’m just at a complete loss. It’s in an excellent location, but it’s a huge mess right now! Do you have any ideas for me?
Mister Condo replies:
G.S., thank you for the well-worded questions. Sorry for your ongoing saga. Let me try to give you some friendly advice and apply my common sense observations that come from being around condos for so many years.
Developers come in all shapes and sizes. The one thing most have in common is “vision”. The developer of your property saw a rental complex with a great location and saw a potential condominium conversion that would transform something old and worn down into something new and wonderful. And if all had gone as planned, I assume the project would also be profitable. A larger developer with deeper pockets would have likely been able to stick it out and see the project through. But nothing fails faster that a developer who runs out of money. The problem is folks like you, who bought into the “vision”, are left picking up the pieces.
As for your questions (1 – 5, above), let me say this. When the developer went bankrupt, all bets were cancelled. Bankruptcy protects the developer from further financial action. Unless another developer or financier (like a bank) takes the project on, there is simply no more money available to complete the work. If a new owner emerges, you may have recourse into having items fixed. The new owner would have the right to do whatever they wanted with the property, including turning it back into rentals but they would have to buy out any existing owners (or wait until they were foreclosed on, ouch!). It could easily turn into a slum area and could easily continue to decline.
My advice would be to get out if you can, although I don’t know who would want to buy into such a “huge mess” as you put it. If that is not an option, you could ride out the craziness and see what happens but don’t expect too much in the way of improvements or maintenance. If there is a homeowner’s association (HOA), they should meet and immediately hire an attorney to protect the common interests of the remaining owners. The HOA needs legal advice more than anything else right now. I don’t want to panic you but the odds of this turning around favorably are not very good. It might just be best to write this off as a learning experience of following someone else’s dream as it turned into everyone else’s nightmare. Best wishes, G.S..