With so many foreclosures and short sales sitting out on the market now, I am getting a lot of potential buyers who are considering purchasing these properties and are not sure about how a condominium or homeowners’ association comes into play. A prospective buyer should always look have an association provide them with an estopple letter, which states the current amounts due for the property.
This is especially true for short sales, where a purchaser is jointly and severally liable with the seller of the property for all costs due on the property, including fees, interest and court and attorney fees. Jointly and severally liable means that the new owner, as well as the old owner (who is the party that created the debt on the property) are both responsible for the debt. Of course it will be the new owner that will be the party named by the association as it looks to collect the amounts due, since the association can look to go after and foreclose on the property, which is now in the new owners name. This can come as a large shock to the new owners when they get a statement showing up to several thousands of dollars due, right after move in.
Some times at a closing, the closing agent will either not look for information from the association, or just flat out ignore it, leaving the new purchaser with the headache of dealing with the debt tied to the property, which should have been handled prior to closing on the property.
It is also important to keep to note that at mortgage foreclosure sales, a party bidding on a property must also keep in mind that while they might have satisfied the bank amount due they also would be jointly and severally liable if they are the winning party at the sale. Only when a mortgage holder takes title the property through foreclosure (or deed in lieu) will the subsequent purchaser of the property not be on the hook for the full amounts the previous owner owed.
What this all boils down to, is that prospective buyers need to do their homework. If your real estate agent is not sure or you need some clarity, look to have a lawyer walk you through it to make sure you have no surprises when you purchase the property.