Consider this: If you had interest in buying a used car and that car had a recall on a specific part. It would be a really good thing that the recall is now requiring the car to be inspected more thoroughly by a third party, with the intention of finding all possible issues and come up with a plan of how to fix any found issues. Would you feel more or less confident about the car you are buying?
With litigation, the attorneys and the HOA board are working to raise the funding necessary to fix any issues and may even find themselves with a surplus in the end. There are no guarantees, but knowing that the intention is to improve the building can offer more comfort to a buyer who is considering a building that is currently in litigation. For me, it feels like a win/win scenario.
Here’s another great reason why purchasing while in litigation is a benefit to you as a buyer. Competition can be limited due to higher requirements from a lending perspective. It’s typical for lenders to require 20-25% down for financing a unit in a building under litigation. A large portion of the buyer population can not meet the criteria for down payment, and in today’s market, eliminating the competition can be very helpful. In a market where the competition is fierce and inventory is low, buyers regularly find themselves in multiple offer situations and in some cases have to pay above market prices to secure the home. This is good news if you are able to foot the higher down payment to secure financing for buildings in litigation.
It’s also helpful in suppressing home values. Because some of the buyer pool is unable to purchase in this scenario, the building prices tend to not climb with the rest of the market. History shows that property values in litigated buildings are somewhat flat until the litigation is settled. At which point, there is a quick climb to reach the rest of the market, making it great for investor mindsets and early equity potential.
In short, you can see the benefits to buying in a building that is currently under litigation:
- A thorough inspection will uncover any defects and be repaired to the benefit of the building overall.
- Elimination of a portion of the buying population due to stricter lending requirements.
- Property values somewhat freeze while under litigation and then rise to meet the market again once litigation is settled.
Below is the current list of downtown condo buildings that are currently in litigation as of 2/28/17:
|Bayside||1325 Pacific Hwy|
|Hard Rock||207 5th Ave|
|M2I||1050 Island/527 10th|
|Park Terrace||253 10th/206 Park|
|Sapphire Tower||1262 Kettner|
|Solara Lofts||1551 4th Ave.|
|The Legend||325 7th|
|The Mark||800 The Mark|
|Union Square||1400 Broadway/1465 C|
|Watermark||650 Columbia/655 India|