Setbacks When Buying A Foreclosed Townhouse In Coconut Grove | Proceed With Caution
There is a new trend developing in the townhouse market here in Coconut Grove and it can happen just days before the buyer is ready to close. If a buyer is purchasing a townhouse that is currently in foreclosure, he/she may not be able to obtain the condo documents for the association which can result in the lender not providing funds just days before the closing. Yes, I said condo documents for a townhouse.
A little history. Back when development was booming in the Center and West Grove, builders were buying lots that they could split in half and put 2 townhouses on. They then formed a condo association with the two townhouses, filed the association with the county and created condo documents. Why did they create a condo association for only 2 townhouses? For one, it is easier for insurance purposes but also because they share a common roof, common wall and perhaps some common grounds.
Here is the problem. Typically, the condo docs are passed from seller to buyer prior to closing but if the owners have vanished and both the townhouses are in foreclosure nobody can get their hands on them. If the lending bank does not see a copy of these documents or receive an estoppel letter that explains the association’s financial strength then they will not release the funds.
After hearing several stories of townhouse deals falling apart because of this, I did a little research and found that all condo docs over the past few years must be registered with Miami Dade County and can be found at www.miamidade.gov in the recorded document division. Perhaps the buyers and their agents were not aware of this or perhaps the association was registered before this requirement was put into place.
On a similar note, there is a new Fannie Mae guideline that went into affect 30 days ago that requires the condo association to be no more than 15% in arrears. If both townhouses are in foreclosure you can bet that neither has been making payments to the association. Therefore, the buyer of the foreclosure will not be eligible for Fannie Mae loans. The option would be to get a conventional loan but that requires at least 30% down at this time.