Buying a Condo Can Be Like Marrying on a Blind Date, Warns Fraud Specialist

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Condo owners with a conventional mortgage - and even those with no mortgage at all -- have become unwitting victims of the collapse of the sub-prime mortgage market. The sub-prime collapse has lead to unforeseen increases in the risks and costs of condo ownership.

The collapse of the sub-prime mortgage market is even putting a squeeze on many condominium owners with conventional mortgages, according to one Los Angeles fraud specialist and business consultant Alex Kwechansky, CFS (

"Condo owners are being hurt in a way that private home owners are not," says Kwechansky.

"When one condo owner in a ten-unit building suffers foreclosure because he can no longer carry his mortgage, he will likely stop paying his homeowner fees. " says Kwechansky "Then all the other unit-owners are forced to make up the difference in their homeowners fees."

That difference can be large if there is a major repair that cannot wait.

It can also have a great impact upon personal relationships among unit holders. "Some people will be able to afford an increase in payments and others who can't may vote against necessary projects," says Kwechansky. "That will create animosities."

Even if that homeowner recovers financially, their relationship may not.

The collapse of the sub-prime market is just one of the things that should concern a condo buyer.

Would a person get married after only a first date? Of course
not! Would a person buy a condo after the first visit? Well, very likely yes! In either case one is being seduced into a commitment before knowing what the relationship has in store.

In today's sub-prime situation, this relationship is even riskier.
Like the person one marries, a condo has characteristics good and bad. Its personality is reflected in its unit owners, its regulations (in some areas called CC&Rs) and its Board of Directors. And before buying in, the buyer may not be able to gauge whether their future neighborhood and they are compatible.

Is the Board of Directors controlled by involved homeowners or by tyrants who gain pleasure in imposing legal and social power upon fellow owners?

A condo's regulations are legally binding and control all legal, as well as, financial activities. One that says "no dogs" -- means man's best friend is not welcome -- and neither, possibly, are animal lovers. Other regulations can ban barbeques or a holiday wreath on a front door or even a snack at the pool.

Alex Kwechansky is a Certified Fraud Specialist in Los Angeles specializing in detection and resolution of fraudulent activities. He has advised condo owners facing disputes with management boards and says those rules and personalities will have a profound impact on one's day-to-day life. A resident may have experiences that are nice or nasty, friendly or fiendish and costly.

Here are some situations a new owner needs to recognize and beware of:
Board members are unpaid. Some members serve reluctantly (no one else wants the job, etc.), some enjoy the involvement while others enjoy a feeling of power over their fellow residents.

Unresolved disputes must be handled by the Board and create stress between residents that can escalate to virtual war. While the regulations structure conduct, personalities may weaken these rules by mixing personal relations with arms length regulations. Accusations of favoritism frequently arise.

A dispute's inertia may cause individual Board members to fear opposing other Board members to stop an action or to settle. They fear being accused of favoritism or creating a precedent that may undermine the regulations. Finding themselves in a no-win situation, they allow these minor issues to grow into a lawsuit where a judge decides the issue. The judge can end the legal dispute but cannot restore harmony between residents, not to mention acts of revenge or reprisal.
When these issues fester, one begins to consider simply moving away. A homeowner may feel forced to decide between peace or place. The financial and disruptive costs to move again may be prohibitively high. Non-payment of one's homeowner fees becomes a possible short term source of moving money in a dispute or eviction.

In the event of legal action taken by a Board, all the residents are equally responsible for the legal expenses. This includes an equal contribution demanded from the party being sued. The defendant homeowner contributes to the lawsuit against them. Their own legal expenses are their own additional expense.

An owner can find himself as the outsider of a social group, or what Kwechansky calls, a "power group". This group believes they have a special position within the community. While not legally enforceable, these formations can cause one to feel ostracized in their own home. This feeling may seem similar to the social cliques once experienced in school.

In a condo, each owner becomes financially responsible for the other. If one owner fails to pay their share or disputes a demand, the other owners may have to pay more to cover for that owner. This has become a bigger risk in sub-prime foreclosures. While these funds should be legally recoverable, that process may take months or even years.

Property management firms that handle the funds of the association must provide clear and verifiable information about cash balance, receipts from each homeowner and expenses paid. While this request seems clear enough, Alex Kwechansky is investigating a case in England where a homeowner has been denied access to the financial information of his Resident's Association and has been sued for non-payment of disputed amounts.

Through litigation, the management firm has disclosed that it co-mingles the funds of all its clients Resident's Associations into one bank account. Direct verification of each association's cash balance is impossible due to the combining of all the deposits and payments of all the associations' funds. This inability to reliably verify such an essential element has led to distrust and litigation that has substantially exceeded the original amount contested by the homeowner. The client chose peace over place and moved while the dispute continues in court.

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