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Condo Association with pending litigation & special assessments

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James Sturm

Member
Joined
Jan 4, 2005
Professional Status
Certified Residential Appraiser
State
Arizona
Working on a REO assignment of a condominium unit in the Chicago market. The property had minimal deferred maintenance and thus not impacting value much. However, the property had pending litigation against the developer, most units having mechanic leins, and the association having a special assessment of $135 plus the $172.50 regular monthly assessment. According to the management company, there is no ending date for the special assessment. Monthly assessments for units of the subject's size and bedroom/bath counts were averaging in the market place between $150 and $180. The market was in over supply 15+ months with values declining.

It is to my experience that conventional lender's will not loan on condo units with pending litigation and mechanic leins. Therefore, the only buyer for this unit was concluded as a cash buyer. The unit was purchased in May of 2006 for $182,000. The building has no resales and the market area has minimal recent and past sales of REO properties to draw any conclusions. The market does have some recent and past sales of newly converted units but very minimal recent and past sales of re-sales of newly converted units. Considering the only buyer for the unit is a "cash buyer", I want to make a terms of sale adjustment of minimally 10% for the difference of a conventional buyer and a cash buyer.

I only have one REO listing within the association of a duplexed unit with five rooms, two bedrooms, one bath on the main level with the duplexed basement level having two rooms including a bedroom and an additional full bath (subject unit is 5/2/2 ~ simplex~ 1 level unit). This property sold at time of conversion for $309,000 and currently has a list price of $209,000 (only 10 days on market). Am I thinking on the right path for making a terms of sale adjustment. Does a 10% downward adjustment appear in line?
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
It seems VERY conservative, to me. On top of limited financing options, a new buyer would be facing the problems associated with the litigation plus the improvement bond.

If you turn down the assignment, you probably won't get any more REO assignments from that client.

I would talk to a few agents that work the area and ask them what their opinion is on marketability. You might also speak with the attorney handling the litigation and try to determine what the possiblitiy of winning and collecting from the developer, how long it has been going on and a forecasted date for settlement.
 
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