Star-Crossed Condo Building by Lake Calhoun
[Editor’s Note: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced. If you need legal advice, please consult an attorney.]
“Roaches check in, but they don’t check out!”
–1981 TV commercial for the “Black Flag Roach Motel.”
The problem with buying a unit in a building subject to litigation is that you may be stuck with it for awhile.
That’s because a pending lawsuit is a big unknown for lenders, who in the interim may slap extra conditions on mortgages for units in the building — assuming they’ll lend at all.
The upshot: the pool of Buyers dramatically shrinks, harming the price Sellers can expect to get while simultaneously lengthening their expected market time.
Of course, that’s in addition to any concerns about the actual subject of the litigation — typically, either damage to/defects in the building’s condition, or, in the aftermath of the housing crash, financial issues (indebtedness and default).
Purchase Discount? Yes, But . . .
Of course, sometimes the litigation arises after Buyers have already bought.
Then, the legal cloud over the building can jeopardize their ability to buy another property.
That happened in a recent deal I was involved in, where my Buyer edged out a competitor for an Edina townhome because the latter’s equity was tied up in their current condo.
The problem?
The condo is in a building that allegedly has sustained damage from nearby new construction, and is now in litigation regarding same.
P.S.: the same building, years ago, endured a similar legal limbo in the aftermath of the real estate crash, when the lender briefly took title to all the units after construction halted.
