My Realtor said that a new home may not be just a house, what else can it be?

Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 3

This is the third post of a series in an FAQ format that I hope will help would be buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ – My Realtor said that a new home may not be just a house, what else can it be?

During your interview with the Realtor that you chose, he/she probably asked if you have considered a condo or something other than just a house in a sub or out in the country. What else is there? Well, Michigan is unique in having something called a “site condo”. In fact, most (but not all) of the homes that were built in any kind of development since the early-1980’s were built as Site Condos. You can read a good legal description of the laws that established this type of development by clicking here. The long and short of it is that there are platted subdivisions and there are site condo developments and the average person would have no idea which is which by just looking at them.

a condo or something other than just a house in a sub or out in the country.

So what is the difference? In a platted subdivision each homeowner owns the land that the home sits of and the house and nothing else. The subdivision may have a Home Owners Association (HOA) but most of them are voluntary, unless it was specifically required in the deed. The roads in the sub are maintained by the local governmental body –usually a township, Village or City. There are deed restricted communities that are platted subs, but which have very specific rules or restrictions spelled out in the deed to the property. You should be informed about that when you are looking and certainly have an opportunity to review those restrictions. 

Usually, if you get out in the country the plots are bigger and are governed only by Township and other government rules or zoning restrictions. Platted subs and platted land out in the country are governed under the Michigan Land Division Act, formerly the Michigan Subdivision Control Act of 1967. A rule of thumb is that the further you get out into the country the looser the rules and regulations seem to get. So, if you want government and homeowners’ associations off your back, head to the boonies.

In a site condo development each owner owns his plot and his house AND, just like in a condo complex, is also a co-owner of some “common areas” with all of the rest of the homeowners. These houses were built under the rules of The Condominium Act of 1978, which requires that each owner MUST belong to the Home Owners Association (HOA) and share in the costs of maintaining the common areas, including insurance for them. And, in well over 90% of these site condo developments, the common areas include the roads. So the HOA is responsible for maintenance and snow removal for your subdivision roads, if it is a site condo complex. You, as the home owner, are responsible for the upkeep of your land and the house. So, remember that if the roads get rough or aren’t plowed in the winter, it’s because you and the other home owners didn’t collect the money to maintain them – you can’t blame government for that.

And there are rules! Every buyer in a site condo complex receives (or should receive) a copy of the Master Deed and HOA By-Laws. Within those documents are all of the terms and condition that you are bound by when you buy into that condominium complex. Your Realtor will make sure that you have the right to review those documents and have the ability to get out of the deal if you find them to be too onerous. Sometimes it might be wise to review them before you even make an offer. You should also be leery of developments with extremely low HOA fees. That just means that they are not collecting enough money to really do the job and things like roads may deteriorate until such time that they may have to impose a big special assessment against each homeowner to pay for new roads. The HOA has the right to do that.

Of course your new home could be an actual condo. Condos come in several different styles and some are what’s called detached condos where they don’t have shared walls with other home owners. They all have lots of common areas – basically everything outside of the house, including the roads are considered to be common areas. That could include things like swimming pools, club houses. garages or carports which may be assigned to specific condo units, and park areas or play grounds.

The rule of thumb for true condos is that everything outside of your unit is the responsibility of the condo association for maintenance and upkeep. That include things like the roof, porches and decks

and may even include the exterior doors. Of course it includes the roads and the pool or any other common elements. That is why condo association fees are usually a few hundred dollars a month - there’s a lot that the association is responsible for maintaining of repairing. There’s also insurance on all of the common elements. So don’t go looking for a cheap monthly association fee; because that probably just means that they aren’t collecting enough money to do the job properly. You have the right to review the HOA budget and the amount of working capital that they have in reserve for repairs and upkeep.

So, what else might a new home be? Well, it could be a Co-operative (Co-op). Co-ops are actually companies that own everything in the complex – land and the building on the land – and lease them out to stockholders in the company. You don’t actually “buy” the unit that you may occupy; rather you have an ownership interest (sort of like stock) in the company that owns everything and because of that ownership position, you are allowed to occupy part of the space (the units) that the company (the Co-op) owns. It’s sort of like a condo; but, in this case you are also part owner of the condo complex. Click here for a good article in the Washington Post about the differences between condos and co-ops. It turns out that the infamous Watergate complex was and is a co-op; but, don’t let that deter you.

Of course there is also a whole spectrum of manufactured homes. Mobile homes that one finds in a mobile home park are manufactured homes, but not all manufactured homes are mobile homes. There is a category of manufactured homes called modular homes which, like mobile homes, are manufactured indoors; however, these homes are manufactured in modules which are transported to

the home site and installed on a foundation, which may be a basement or over crawl space. Modular homes may be one or two stories when assembled on site and become “real estate” when they are installed. Modular homes meet all local building requirements. Realtors can help on buying and selling modular homes. On the other hand, Realtors may not deal with mobile homes, which are treated more like a vehicle sale. Mobile Home salesmen have a different license and can only deal in mobile homes.

Mobile homes, even if the wheels have been removed are not considered to be real estate. In many states, if the mobile home is permanently mounted on a foundation it may be considered to be real estate from that point on. Modular homes are built in the factory to local building code standards, while mobile homes are usually built to less stringent standards. Of course, with a mobile home you are likely to be in a mobile home park and to have to pay rent each month for your parking spot. That rent covers the cost of maintaining a common septic system or sewage treatment plant and the shared water delivery system for the park. It may cover other shared cost of the park. Check with the management of the mobile home park for details on that, since I’m a Realtor and don’t deal with mobile homes.

Each of these different type of homes has their own advantages and disadvantages, depending upon how you look at things. Buying into any of them still works out better than continuing to rent an apartment or living in the basement with mom and dad. Be sure to ask your Realtor to keep you informed as you look as to whether what you are looking at is a regular house on a platted piece of property or one of these other types of homes. 

It’s a Site Condo. What have I gotten myself into?

As would be home buyers wander around in their cars or spend hours on-line looking through listings, they are usually not aware of the fact that they are oft times wandering into and out of

condominium complexes. After all the homes are all separate and have their own yards. It’s a subdivision, right? In Michigan most of the tie the answer would  be no, if the “subdivision” is newer. Since the mid-1980’s Michigan developers have found it quicker and easier to apply for all of the necessary permissions to build under Michigan’s Condominium Law, rather than under the older Land Division Law that governs true subdivisions.  What they end up building has been given the name “Site Condos”.

There is no legal description of the term Site Condo m in the Michigan Condominium Law; however, it is the common usage term for a development where everyone owns their own plot of land and their individual house, but they are also co-owners of a variety of “common elements” – things like the streets in the complex, the entrance island and any amenities such as park spaces or playgrounds that might be shared by all residents in the complex.  Not only do they share ownership of those common elements, they also share responsibilities for them and are required to join the Home Owners Association (often called a Condominium Association) for the complex and to pay the dues for that membership.

The need for such an association is clear when you stop to think about the consequences of the shared ownership of the common elements. While each individual homeowner is responsible for things such as insurance, upkeep and maintenance for their own plot of land and the house on it; it is the Home Owners Association (HOA) that is responsible for those things for the common elements. Probably the most important and the item of biggest potential cost is the maintenance of the roads in the complex. You may think that the City or Village or Township or County has that responsibility. Wrong! Remember that you live in a condo complex. The maintenance of the roads and things like snow removal  in the winter are the responsibility of the Home Owners Association. That’s why they collect a monthly HOA fee. The HOA also pays for the maintenance of any entrance improvement to the complex (usually a sign and perhaps a small island at the entrance). They also pay for liability insurance on the common elements. This protects the owners is someone is injured while using the common elements.

When considering buying into a Site Condo complex there are things that you need to check and rights for information that you have in order to evaluate the state of the HOA and potential future liabilities. You should download and read through a copy of the Condominium Buyers Handbook , which is published by the State of Michigan. You should make sure that any offer to purchase a Site Condo is made contingent upon  your right to review the the Master Deed and the By-Laws of the Homeowners Association within a reasonable period of the offer being accepted (usually 3 days). You really should do that before you even make the offer. Then you should thoroughly read through both documents to see if there are terms and conditions (usually deed restrictions or HOA rules) that you cannot live with. You have the right to back out of the deal is that is the case (assuming that you put that review contingency in the offer).

Before you get all upset at the monthly HOA fee that you might see in the listing, remember that

those fees are being collected (and hopefully well managed) to provide the money needed for valuable services, such as snow removal, sidewalk (if there are any) maintenance and liability insurance on the common elements of which you are a co-owner.  In fact you should ask to see the HOA financial reports to make sure that Association is collecting those fees and investing them for future use. That’s a good thing. Don’t feel good about finding a Site Condo development where the HOA fees are really low. That means that they are not saving for future needs. Why is that important? Because some day the roads in the complex will need repair or replacement; and, when that day comes, the alternative is that each owner in the complex is hit with a special assessment for the costs. That can be big bucks. I know of one case where every homeowner was hit with a $20,000 assessment because they had not been collecting for the eventual road replacement that finally came due.

So, buyer be aware (not beware) that it is your due-diligence responsibility to read and understand the responsibilities and obligations that are associated with buying that house. In cases where you used to be happy saying “they will take care of that”; you are now the “they” in that sentence. They’re your roads and your entrance and your playground or park and it’s your responsibility, through the HOA, to take care of them.  There could even be liens on the property due to disputes between the previous owner and the Association. HOA’s have even been known to initiate foreclose proceedings. .

Also be aware that the HOA By-Laws give the association great power over other things that you may think are rights of the individual homeowner. The HOA can have rules governing the type, size and number of dogs or other pets that you can have. The HOA will likely have rules that prevent you from putting up fences or out-buildings. There may even be rules about how often you have to paint your house and even restrictions on the colors that you wish to use. HOA’s are given great power and it is up to each HOA how they exercise those powers. The only way that you can know what’s going on is to go to the meetings;  however,  HOA’s are also not subject to the Open Meetings laws, since they are not public entities, so check with other residents about how the HOA conducts its business.

Your home being a part of a site condo development isn’t necessarily a good or bad thing. It’s just something that you need to be aware of and find acceptable. Once you’ve purchased your “unit” within the site condo complex you’ll have to live with the rules of the HOA until you sell. 

Foreclosures and HOA – by Emily Dressler

Ed. - Today's post is a guest article by Emily Dresser of the web site www.deeds.com

What happens when a financial institution or other group buys a condo development out of foreclosure? Do they have to follow the original deed that the developer had or the agreements the original developer had with the local government as a site condominium development? Is this situation similar to a zombie title foreclosure?

Currently, zombie foreclosures represent every one in five foreclosures nationwide, according to housing data firm RealtyTrac. It’s not just individual homeowners losing their homes to foreclosure; some condominium developers have lost developments to foreclosure after filing for bankruptcy.

A foreclosed or abandoned site condo complex could quickly turn into a modern ghost town and can create numerous legal issues for homeowners who purchased units in the development early on and for a homeowners’ association. Owners who moved into the development before it was completed are left wondering if the development will be finished, if the proposed amenities will be built, and if necessary infrastructures like roads will be finished. Who is responsible to complete the development? How will warranty claims be addressed? Can they stay in their homes? Will the new owner follow the covenants in the master deed?

A number of things could happen in a situation like this, and any owner is advised to seek legal counsel. Some states have laws addressing the bankruptcy of condominium developers and what happens to the HOA if the developer declares bankruptcy.

The new owner could terminate the Homeowner’s Association, or could buy enough units to gain control of the association. Many condo owners depend on their HOA for routine maintenance, landscaping, and other amenities. If the required number of units hasn’t sold for the developer to hand over control of the HOA after they have filed for bankruptcy, the homeowners are often left to defer to state law and the Uniform Common Interest Ownership Act (if the state is a UCIOA state).

The homeowners who are left behind after the foreclosure sale could possibly seek judicial declaration stating that the developers’ bankruptcy is a de facto turnover of the association to the homeowners. This allows the owners to have control of the HOA, assuming enough of the units are occupied.

Emily Dressler writes for deeds.com, a leading publisher of state- and county-specific real estate deeds. For a more in-depth look at zombie titles and foreclosures visit, http://www.deeds.com/information/Zombie-Titles-and-Foreclosures-1364584818.html, and to purchase a state-specific real estate deed, visit deeds.com.    

(Ed. – We certainly experienced what Emily wrote about locally, with several site condo developments abandoned by the original developers, many of whom when out of business or bankrupt and sold off the remaining lots or lost them to the banks. Fortunately, many developers locally just shut things down and rode out the recession and have now resumed building. In the interim early buyers were left with a feeling of abandonment and confusion over what their rights might be and what obligations they might have inadvertently inherited.)