Form 1025 - 4-Unit Condominium Unit?

[Lee Lansford]

See post #9 by PropertyEconomics



Your suggestion in post #9 seems to be a good/sound way to approach this assignment.

Ron, if you interpret this as requiring the use of a HC in such a situation, such is incorrect.

If you reach the conclusion that the H&B Use is for the improvements as a 4-unit (de-conversion from condo) property, that would be another matter.

Lee

 

[hastalavista]

I should have clarified that the lender owns all 4 units in this building that I am appraising. However there are three more 4-unit buildings in the complex for a total of 16 condominiums. One building is abandoned, and the other two have tenants that have not paid rent from 2-5 months and will be evicted next week. A total of four owners own the 16-unit complex. They are all most likely in foreclosure proceedings.

Also, this market area is apartments with very few condominiums.

The complexity of your assignment has increased by orders of magnitude (no doubt, Ron, your fee will too? :laugh.

Your post gives a great example of the dangers of assumptions that PE and I just discussed- I assumed that the four-unit building was the entire project!!!

Well, it sounds like we are back to bulk-sale discounting with a lot of issues. Not only ( I assume) can these units not be converted to something without the entire HOA re-organizing itself, but the ability to modify what does exist (in terms of repairs) may also be limited. Can an individual unit do exterior repairs, or is that solely up to the HOA because if an individual unit does any exterior repairs, it voids the HOA's insurance policy (for example)?
How much is a condo bulk-sale worth in a project where the HOA is probably insolvent?

Many clams, my fee, says I.

(I always mean "good luck" when I say it, but now I really, really mean "good luck"!! :laugh

 

[PropertyEconomics]

The complexity of your assignment has increased by orders of magnitude (no doubt, Ron, your fee will too? :laugh.

Your post gives a great example of the dangers of assumptions that PE and I just discussed- I assumed that the four-unit building was the entire project!!!

Well, it sounds like we are back to bulk-sale discounting with a lot of issues. Not only ( I assume) can these units not be converted to something without the entire HOA re-organizing itself, but the ability to modify what does exist (in terms of repairs) may also be limited. Can an individual unit do exterior repairs, or is that solely up to the HOA because if an individual unit does any exterior repairs, it voids the HOA's insurance policy (for example)?
How much is a condo bulk-sale worth in a project where the HOA is probably insolvent?

Many clams, my fee, says I.

(I always mean "good luck" when I say it, but now I really, really mean "good luck"!! :laugh

My how the story changes. Now using a four plex as comps and appraising the property as four plex is totally out the window.

 

[Webbed Feet]

<... snip....>and if any HC were involved I would think it would be that the condo documents can be defeated and made invalid..<....snip.....>

Use the words "can be," without knowing the truth, and you have an EA, not a HC. Use the words "have been," if in truth they can, and you have an HC. A very, VERY important distinction under USPAP!!!!!!!!! If an appraiser uses an HC the appraiser is required to know what the truth of the matter is and disclose that truth.

If the appraiser knows for a fact the Declaration of Condominium, and deed restrictions created by same, can be defeated then a proper HC would say "The Declaration and Restrictions have been defeated." If an appraiser must move forward without knowing what the truth of the matter legally will be, but has determined a credible assignment can still be completed using an assumption, then the entire matter must be handled via an EA because the truth is not known. Now the appraiser would use "The Declaration and Restrictions can be defeated."

However, to make matters worse, this is a complex situation. I would say it is possible that both an EA and HC may need to be used. If the appraiser has no legal determination from an expert the documents can be, has been, or will be, defeated ... the appraiser is going to have to use an EA about that. But the facts are that as of the effective date of the value opinion only an expert legal opinion of "has been" defeated clears any of this up. So a EA of "can be" may be needed with also a HC of "have been" for the effective date use.

You see ya all I've been reading this wondering who has 100% read the Declaration of Condominium and any filed HOA restrictions that are now legally governing documents over the deeds of each unit? I would not expect it, but what if they say the units cannot be rented and must be owner occupied? So that the condo "project" does not ever have an "owner to tenant" ratio that disallows forms of GSE secondary finanacing? What buyer of a condo unit would want to find out they cannot even refinance via any typical lender because all of the other three units are owned by one owner that is renting them out? .... So the owner / tenant ratio is blowing their owner occupied refinance, or sale to another owner for owner occupied, out the window? What if a lender is literally prohibited from selling the four units in bulk to one buyer until those documents and restrictions have first been defeated? .. Only no work to legally defeat them has yet taken place? Something that could be very real as the first post states there is one mortgage outstanding and I have not read a foreclosure has yet happened. So how could a lender currently defeat possible deed restrictions on a property they don't even own yet?

Me thinks any appraiser would have some serious document reading to do prior to proceeding on a request that turns out to be a deed restriction violation and the appraiser had no idea.

 

[PropertyEconomics]

Use the words "can be," without knowing the truth, and you have an EA, not a HC. Use the words "have been," if in truth they can, and you have an HC. A very, VERY important distinction under USPAP!!!!!!!!! If an appraiser uses an HC the appraiser is required to know what the truth of the matter is and disclose that truth.

If the appraiser knows for a fact the Declaration of Condominium, and deed restrictions created by same, can be defeated then a proper HC would say "The Declaration and Restrictions have been defeated." If an appraiser must move forward without knowing what the truth of the matter legally will be, but has determined a credible assignment can still be completed using an assumption, then the entire matter must be handled via an EA because the truth is not known. Now the appraiser would use "The Declaration and Restrictions can be defeated."

However, to make matters worse, this is a complex situation. I would say it is possible that both an EA and HC may need to be used. If the appraiser has no legal determination from an expert the documents can be, has been, or will be, defeated ... the appraiser is going to have to use an EA about that. But the facts are that as of the effective date of the value opinion only an expert legal opinion of "has been" defeated clears any of this up. So a EA of "can be" may be needed with also a HC of "have been" for the effective date use.

You see ya all I've been reading this wondering who has 100% read the Declaration of Condominium and any filed HOA restrictions that are now legally governing documents over the deeds of each unit? I would not expect it, but what if they say the units cannot be rented and must be owner occupied? So that the condo "project" does not ever have an "owner to tenant" ratio that disallows forms of GSE secondary finanacing? What buyer of a condo unit would want to find out they cannot even refinance via any typical lender because all of the other three units are owned by one owner that is renting them out? .... So the owner / tenant ratio is blowing their owner occupied refinance, or sale to another owner for owner occupied, out the window? What if a lender is literally prohibited from selling the four units in bulk to one buyer until those documents and restrictions have first been defeated? .. Only no work to legally defeat them has yet taken place? Something that could be very real as the first post states there is one mortgage outstanding and I have not read a foreclosure has yet happened. So how could a lender currently defeat possible deed restrictions on a property they don't even own yet?

Me thinks any appraiser would have some serious document reading to do prior to proceeding on a request that turns out to be a deed restriction violation and the appraiser had no idea.

Webbed I agree and I would have done both honestly and they would have been phrased as you said, HOWEVER, that is now totally out the window because the story changed tremendously. Imagine that, and not picking on Ron, but an OP not telling the entire situation.
There is no way to appraise these units as a four plex given his latest post. That idea is out the window now.
But your post is certainly right with regard to the original question posed.

 

[Webbed Feet]

Whoa!!! I missed Mr. DeSaix's and P.E.'s latest posts and that quote disclosing this is really a 16 unit project. ... LOL... was I prophetic again maybe? Maybe sorta!

What a bloody mess !!!!!! Who exactly has yet bothered to study if the J.A. will EVEN ALLOW a legal 4-plex to be created? ... Who wants to bet this was originally a 16 unit apartment complex and that it CANNOT ever be a four unit plex? You've got common area for Pete's sake and probably a bankrupt HOA with no reserves for a darn thing! Just WHO in the hell in the market place is going to even "bulk" purchase four units under those circumstances? What if one of the four owners has loans from a different lender? I'd be immediately asking what definition of value this client is asking for!

Oi !!!

 

[PropertyEconomics]

Whoa!!! I missed Mr. DeSaix's and P.E.'s latest posts and that quote disclosing this is really a 16 unit project. ... LOL... was I prophetic again maybe? Maybe sorta!

What a bloody mess !!!!!! Who exactly has yet bothered to study if the J.A. will EVEN ALLOW a legal 4-plex to be created? ... Who wants to bet this was originally a 16 unit apartment complex and that it CANNOT ever be a four unit plex? You've got common area for Pete's sake and probably a bankrupt HOA with no reserves for a darn thing! Just WHO in the hell in the market place is going to even "bulk" purchase four units under those circumstances? What if one of the four owners has loans from a different lender? I'd be immediately asking what definition of value this client is asking for!

Oi !!!

And you can bet your sweet butt that there is no way to address the issues of this complex property without doing a narrative at this point. Not only do you have to consider how the lenders ownership affects the project, but you have to consider how the project affets the subject. Absorption is now much more complex as is discount for bulk sale. This is now a stinking mess and much much much more complex than originally stated.
It would be interesting to know if the foreclosure was also against the articles of incorporation ... a fine legal mess for sure.

COMPLEX .. have I said that enough?

 

[Ariba]

Webbed I agree and I would have done both honestly and they would have been phrased as you said, HOWEVER, that is now totally out the window because the story changed tremendously. Imagine that, and not picking on Ron, but an OP not telling the entire situation.
There is no way to appraise these units as a four plex given his latest post. That idea is out the window now.
But your post is certainly right with regard to the original question posed.

Just for your information, the entire situation is still evolving. Although they have a Condominium Declaration the the Homeowners Association has never functioned, nor were any dues paid.

So in reading all the previous post, are you all saying that most off these issues cannot be addressed in the Scope Of Work? Also, since it does not involve a loan/mortgage why can't the client set the rules on what they want? Seems to me that if you disclose everything on how you arrived at the opinion of value and the assumptions made, that there should not be a problem in completing this assignment. Am I wrong?

By the way, thanks for all the input, it is greatly appreciated

 

[hastalavista]

... was I prophetic again maybe? Maybe sorta!

I'm going to start to refer to you as The Oracle of Oregon! :laugh:

 

[Webbed Feet]

P.S.... Last thought... Four different current outstanding owners of different buildings.... and UTILITIES !!!!!!!! Who wants to lay odds we are talking the same water main and sewer line going in to what used to be a 16 unit apartment complex... the HOA supposed to be paying water and sewer for one and all? Absolutely no way to prorate the water and sewer regarding a "Bulk Sale" of one of the buildings for a buyer that doesn't want to pay it all for the entire complex? LOL !!!! I don't know about you guys... but MY fee just went into the thousands to work on such a bugger, and I might call in a Certified General as I am Certified Residential!

P.S.S. And I'd want a retainer!!!!!!!!!!