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I am interested in purchasing three out of four condos in a condo association. Three are REO and are being sold together under one MLS #. The condos are currently rented, except the one owner.

There are two similar buildings on the same street at the condo, but are owned as apartments. What it sounds like is someone purchased this building 7 years ago, tried to make them into condos and it foreclosed as they never sold all the condos. It is a local REO. I have currently requested the condo docs and hopefully will have those shortly.

Here is what I am wanting to do and am seeking advice: I am wanting to buy the three units, and thus will have control of the association. Ideally, I would want to buy out the owner of the one unit. The owner purchased in 2007, and is most likely underwater. I would then dissolve the condo association and rent out the units.

Questions: I plan to purchase the three condos with one mortgage from a local bank. I currently have 3 mortgages and this would be a 4th, which puts me at the cap. Anyone have experience with putting more than one property/parcel on an investment loan (not commercial)?

Assuming I get the condos, I see two scenarios with the owned unit: they don't sell, in which case I have three condos, but all are cash flowing nicely. I continue to run them as rentals and manage the association separately and pay for 3/4 of the buildings costs.

Second scenario: They sell to me. It would have to be less than they paid, so they most likely have no incentive to sell, unless I can somehow do a seller financing type of strategy and take over their underwater mortgage. I would then want to dissolve the association (or would I as long as I own them all?). I would imagine I need an attorney to dissolve the association, but any comments or experience in this?

Any thoughts on the above scenario?

edit: grammar

Member Summary

Consult a real estate attorney. There is a bunch of work to be done.

Correct that ownership is worth more as an entirety than 0.75 ownership proportionally. You need to do a lot of creative financing, maybe restructuring the building as you plan could allow buying the other party out using 1 blanket mortgage for the entire structure after the other party sells to your shell holding in a series of steps which will be expensive and full of pitfalls. Lizards will feed on you to draft all the documents and grease all the wheels.

A few questions: What is this four mortgage cap you talk of? I've had more than four residential mortgages at once in the past. Never a problem.

Why dissolve the condo association? If you have 75%, you very likely have control. If you own 100%, then you clearly do. Set the rules regarding renting however you like them/etc. It is about the same to finance individual units as it is to finance a four family building. But, keeping te condo active gives you the easy option to sell units individually in the future (while not precluding a block-sale either).

This gets a little dicey, but you could use the condo association, which you control, to make life a little less pleasant for the 25% holder. Assessment? Good idea. Tighter rules on pets? Sure. The list of things you could do to help move them out is quite long.

Thanks for the info. The four mortgage limit is from Fannie Mae and typically banks won't allow more than four mortgages for an individual. Another option would be going a commercial loan route. If I am unable to to get one loan for these units, I will need to call around to local banks and determine if any will loan more than four.

Good point on the dissolving. It would make sense if I can get them all just to keep it. I did just get the condo docs this morning, so I will be reviewing shortly. I'd like to try to get them out on pleasant terms, but it would make for a fun FW thread about trying to get someone out of a condo . I'm wondering if perhaps a first right of refusal in the condo docs would be beneficial.

Another option I am considering is applying for a loan at the bank that is selling them, it is a local bank and perhaps put in the offer or notify them I plan to use them to purchase the property. I would imagine it may be easier to do that way.

isobro said:   <snip>

Good point on the dissolving. It would make sense if I can get them all just to keep it. I did just get the condo docs this morning, so I will be reviewing shortly. I'd like to try to get them out on pleasant terms, but it would make for a fun FW thread about trying to get someone out of a condo . I'm wondering if perhaps a first right of refusal in the condo docs would be beneficial.

<snip>


Almost as much fun as a "My new condo association tried to force me out and now I own it!" thread would be.

You or the Hoa will almost certain be involved in litigation if the other homeowner is savvy/ litigious

I'd research your opponent before proceeding - have a pi determine their age occupation , credit , mortgage balance, past suits etc

Hmm. I've had over four 1-4 family mortgages at once. I'm pretty sure one of the banks (First Republic) just kept the loans I had with them on balance sheet and/or sold to Thornburg...so I never went over 4 in any agency program.

As controlling owner on the board, certainly a few assessments - large, due in one lump sum - for "recommended maintenance" would be a nice way to kick things off. Heck, maybe you could even own one of the companies doing the work. (I used to own some condos in a 100-unit complex and was on the board - but resigned because essentially every other board member had some degree of conflict of interest - and I felt I was breaching my fiduciary duty to all owners by not objecting to the conflicts more vocally.)

Certainly doing some dd on the fourth unit owner would be helpful. I doubt a private investigator would be needed.

Thanks nybanker and SIS. I'm glad you mentioned this and checking into the owner. I was able to determine age, marital status, occupants in the unit, past suits in my state, duration of time lived in the state, tax info, holder of the mortgage. The individual has no civil cases listed (in my state). The other individual living in the unit, presumably a significant other, has no civil or criminal data beyond a divorce in the past. Nothing that raises any big red flags.

Condo docs aren't too long, and nothing that seems out of the ordinary in regards to common element expenses, restrictions, insurance, etc. There is not a statutory reserve account. There is a reserve fund setup for common area expenses.

The four mortgaged property limit was somewhat recent, it's only been around for the last three or four years. Before that things were a lot easier, I knew people who had 20 mortgages and the rules back then were something like no more than 5 mortgages with one bank. In terms of getting 3 units, while might be listed as one property, it may be treated as 3 separate properties because each unit would be a separate deed. You'd have to see if your local bank will do 4-10 mortgaged properties, those are possible but few banks participate in those. Also because you're getting a mortgage and you don't mention what state you're in, do you need anything from the current owner which says that all the other units have paid their condo fees?

I'd want to know both of their occupations

Many a company has made a big mistake going up against me, either not knowing my occupation or foolishlly thinking my occupation didnt mean they were going to pay .

They always end up paying.

You take a mortal man,
And put him in control
Watch him become a god,
Watch peoples heads a'roll
A'roll...

excuse my ignorance, but what could the other owner sue you for?

delzy said:   You take a mortal man,
And put him in control
Watch him become a god,
Watch peoples heads a'roll
A'roll...


There is going to be a Symphony of Destruction here?



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