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HomeMy WebLinkAboutORD 2852I • • . , ; ORDINANCE NO.. 2852 ORDINANCE'OF THE COUNCIL OF-TRE CITY OF PALO ALTO AMtNDtNG SECTION 16.,38 .. 060(£) (2) OF THE PALO AI~TO MUNICIPAL CODE ~ELATING TO A PRIMER FOR PROSPECTIVE PURCHASERS OF COMMUNITY HOUSING The Counc1l of the City of Palo Alto does ORDAIN as fol­ lows: SECTION 1 Subsection (2) of subdivision (f) of Section 16 38e~Ktr of the Palo Alto Municipal Code 1s hereby amended to read as follows: 11 l2) The property report and a primer relating to community housing for prospective purchasers of community hous1ng, approved by the director of planning, shall be presented .by the developer to each prospective purchaser of. any interest ~n a community housing project prior to taking a written offer to sell or lease The develqper shall also present to each prospective purchaser, prior to taking a wr~tten offer to sell or lease, written notice that property taxes are l1.kely to increase if the p~cject is reassessed as community housing and that monthly association fees are difficult to predict and may increase substantiallyo" SECTION 2, The-Council finds that the enactment of this ordinance wiil have·no significant environmental impacto SECTION 3v This ordinance shall become effective upon the commencement of the thirty-first day after the day of its passage~ INTRODUCED: May ~. 1975 PASSED7 May 19, 1975 AYES a Beahrs, Berwald, Clay, Coastock, Henderson, Norton, Pearson Rosenbaum, Sher NOESi None ABSENT il None ! · ATtEST, . ~~4.~1::!~ APPROVED AS '1'0 FORM: ~s&iP=M~rfey- APPROVEDa APPltOVEP~ -, ae .. tl: ~~A- lit c,e .. Mayor . . · · . APPROVED: C3.ol...<3~· Director of PUbllo Works and-Engineering fl' I ; ~-\/V ~~:-K j~_Jl~: ~ ~ ~' ~ ·~ ~ :--~~ . '·, - / !2 ,-; ,:_, 5,: . /' -; ") "... • L o ••-• < -/ ----· ,, ~APPROVED; _ • -·J+f'---; .. l-· · ~annlng .. , . ~ . -. : . -~ . ·:-:. _ .. , -.•. - -· ·-·-· . ~-~ . ·. ; ~ -_ · ... .. : ,, ·. . . . . ·. ~--:. -'· ~ -. • .,._ ~ L -:-.1.._· . ._·. ·-: .. ~ ._,~;·:;'-~~;: -. ~ ~-. ' ,-~· ,, .. . Qu:stions Condo . · Jlout . · ·· .. · m1naums · . bet What to ask . . ore you buy? ~tofH .. and Urban o.w.l OUI!fll . QP~Mnt· It!;> : ; : ·~; . ~--~. :. ·" . ~ .. . . ·._ . :. : ~ . : . . ~ .. ' .-.:·' .. . . . :• . ·. -: -~-. . __ ..... _ --. ' . ·:-_., ' l ~ Questions About Condominiums What to ask before you buy? Dtpertment of Hauling and Urben ~opment ,J. ,_ r ... Chapter I Chapter II ., • ' ·t CONTENTS Preface Condo ... What??? Pitfalls and Safeguards in Condominium Documents Page 3 4 13 Chapter Ill When Rental Properties 17 Convert to Condominiums Chapter IV' The Condominium Concept 21 ·Chapter V Understanding the Function of Principal Condominium Documents 27 Chapter VI Section 234 (National Hooting 35 Act) and the Consumer GI01S8ry 39 Field Office Jurisdictions 44 of HUD !;. ';!_,_-_ •• 2 PREFACE A well p!anned condominium community offers both possi­ bilities for architectural excellence and opportunities for a new and rewarding way of life that seem almost limitless. These benefits, when coupled with the consumer's ability to own and control an individual dwelling unit and a share in recreational and other common facilities, hold increasing public appeal. Housing economists predict that 50 percent of the United States population will live in some form of condominium housing within 20 year!), Statistical trends support that prediction. The purpose of this booklet is to inform possible pur­ chasers and otherti interested in the condominium concept and to encourage-not discourage-condominium ownership. To help potential owners buy wisely, some negative factors are discussed. A negative factor, however, does not neces­ sarily mark a particular condominium unit as a poor investment or the developer as an unscrupulous operator. Rather, it may result from error or lack of understanding on the part of those who established the condominium and may be corrected. The first three chapters cover pitfalls for purchasers and ~ggest safeguards for avoiding them. Chapters four and five discuss the condominium concept in somewhat greater detail for those owners who become members of a Board of Directors or an Owners' Council. The information also should be useful for indoctrinating the general public and gOvernment officials-both Federal and State-in this excel­ lent form of homeownership. Some terms used may be unfamiliar to readers, but they ··are the-terms found: in legal documents which condomin· ium purchasers are required to sign. There is a glos...c;ary in the back ofthe booklet. 3 ~· . CONDO ..•.•.• , What??? Question' If you are thinking of purchasing a condominium dwelling to Ask unit, don't be afraid to ask questions. This booklet will Si.!pply you with some answers and stimulate more ques­ tions to ask as you learn .~bout this relatively new form.ot homeownership. · Condominium living is rapidly gaining in popularity and, as land costs increase, it is destined to become even more popular ir. future. . Condominiums come in many forms, from towermg inner·city structures to suburban townhouses with beauti· ful, environmentally designed surroundings. Some are con­ versions of luxurious old rental structures which have been rehabilitated and modernized into highly desirable dwell­ ings. Soma, however, are merely old, exhausted rental properties which have been painted, carpeted wall to wall, given new kitchen equipment and cast into the condomin­ ium market. Condominium lam can be applied to either kind. 4 Also, there are many kinds of developers of condomin­ iums. The majority are highly reputable and have no desire to limit their careers by marketing shoddy products. They know that there is no substitute for integrity in their relationship with consumers whether or not they are oper­ ating in a State which has consumer protection laws or under a federally regulated program. There are, however, many opportunists who thrive on popular trends. Contrary to the belief of many, condominiums are not created under Federal laws. There is, however, a iaw covering mortgages insured by HUD-FHA under the Nation­ al Housing Act. This will be discussed in a later section of the book let. Condominiums are actually created under a special real estate law in the State where they are located. Each of the 50 States, U.S. Territories, (i.e., Guam, Virgin Islands) and Puerto Rico has its own condominium law. The laws provide a legal framework within which conditions, covenants, and restrictions {C,C, R's} can be imposed on a property. The laws differ as to detail and the condominium documents used in each State will differ accordingly. Condominium documents also differ from one development to another because they must describe the characteristics of the development they represent. In the basic f,txplanation only the fundaments! condomin· ium concept will be discussed. The ~onditions, covenants, and restrictions will be discussed as each document is explained. Don't hesitate to ask .. anything-even questions that may seem silly to you. ·It's better to feel silly now than sorry later.· , Request any and al! avarable informational material. Don't be reluctant or apologetic. You have a right to insist upon receiving copies of not only the basic documents but anything else that would make a full. disclosure of the sale ·terms to you. Don't sign a Subscription and Purchase Agreement or any other form of sales contract until you have received and read a copy of the Declaration, Bylaws, Operating Budget, Manasr-ment Agreement, and Regulatory Agraa.­ ment (if any mortgage in the project is HUD-FHA insured). Sales contracts or SubsCription Agreements normally ccn­ tain a clause which states, ()Yer your signature, that you have received the organizational documents. These principal documents are defined and explained more fully in Chapter v. 5 Points to Consider When Buying a Condominium Unit Don't accept the answer that the Condominium Declara· tion C'.an only be seen at the local land records office. Don't make a downpayment until you are sure of your mortgage ·Joan-unless the purchase agreement states that the downpayment will be refunded if you are unable to get mortgage credit. · · · · .· . · Ask about settlement costs. They will require cash over and above your downpayrrient. Ask for a Budget. Each prospective owner must be aware that the extent of obligation assumed is not limited to the cost of the unit. Besides the mortgage debt (principal, interest, taxes, and insurance) which will . run over an extended period, there will be monthly assessments to· cover maintenance and related expenses of the comtoQfl area in proportion to the percentage of undivided interest attached to your unit. Find out how much that' will be beforehand, Not After You Sign A Binding Contlact~ . ·· If you don't understand the documents-and even if you think you do-1181k legal Did •. It is necessary that. you understand what is in them, since thev will control not onty yQUr future rights as a eoodominium owner but also your \lbligations. . .. ·. . · . . Ask about an information Bulletin or· its equivalent (pamphlets, brochures and the like}, .'to give You a. clear overall plctt:'re of the condominium develOpment in which you're purchasing a unit. Rerrtth'Tiber, tiowev8r,. these do not substitute for·.· the documents Which legally . create the condominium. · find oUt on what ba$is your c>wneiship, ·8ssessments and voting rights art! being determined. If 1h8nt -is a -·lease involved be . ~re you undentand that you are . not the owner ·of· the property it covers.· You shoo ld find out how much it will cost you to rent a_nd mail1tain the leased property over and above .vour condominium charges. 6- ~ -' A Declaration normally provides for a master hazard insurance policy, insuring against loss by fire and other perils. Such policy should contain a condominium property endorsement which recognizes that condominiums have a multiple number of beneficiaries. Each prospective condo· minium purchaser should be certain that such an endorse­ ment is part of the insurance package. Ask About It! The prospective purchaser should be sure that there is sufficient liability coverage for the entire condominium development and that the liability insurance policy names, as insured, the board of directors and each unit owner individually as co-owner. Find Out For Sure! Does the developer have sufficient capital to complete the entire condominium v•!thout using your downpayment? The entire condominium development includes the common facilities. (The selling price as well as the cost per square foot allocated to each unit includes a proportionate amount of the common area and its facilities.) Failure to complete the common facilities will result in an overpayment for the value you actually receive. HUD-FHA and some States require that downpayments be deposited in escrow until the dwelling units and assodated common area are substan· tially completed. 7. Ask Whether the condominium you see is the entire development or if the developer plans to enlarge the condominium by adding more land and additional condo­ minium or rental units. Has the developer's right to do so been predefined in the Declaration? You need this informa­ tion to make an intelligent decision whether or not to purchase a unit in a condominium which does nOt have a firm percentage of interest at the time you purchase. T~,;; · ,, developer must predefine his intention in order to add. cflly. ';: kind of additional units whether compatible or not, i.e., · · · commercial units, or expensive amenities oot aiiticipated by you at the outset. . ' · · Determine the extent of any other · control by the developer, both before and after the condominium is legally constituted, and the effect, if any, .QO your future rights and obligations. . Ask What Your individual dwelling unit estate encom­ passes. What· are its boundaries? What are the boundaries of the common estate? Are there &t'\v nmricted common arees and how do they apply to you? · . · If this is to be your permanent home find out to what degree transient occupancy is alio~. For dev,_,&~ents . with federally insured mortgages, . Hl)D-FH;6. requtrements specify that a family unlt cannot be rented by the owners for transient or hotel pui'poses.-This is defined in part as; (1) a rental for. any period less~ than 30 daY$ or; {2) any rental if the occupants of . ~a family unit · are provided customary · hotel services. The owners of the ·respective units, however, should have the right to lease for resi~tial 8 •'f . purposes, subject to the covenants and restrictions con­ tained in the Declaration, BylaWs, and Regulatory Agree- ment. · Inquire About any "Liquidated Damage Clause" in the Sales Agreement, i.e., conditions under which you could lose your downpayment. How Many Days are allowed for you to review the sales contract and basic condominium documents? Is it a long enough period for you to understand the documents and to seek legal assistance, if necessary? In order to be assured of a good title, free and clear of any liens, you should consider purchasing an "Owner's Title Policy." Are there any restrictions on your right to re-sell? Do you have the right to sell your condominium unit on the open market or must you first offer it to the condominium association for a stipulated period of time? In HUO-FHA regulated condominiums restrictions such as the "right of first refusal" are not permitted. A condominium regime cannot be established within a given area without meeting State requirements. Remem­ ber-not all oondominiums are subject to HUD-FHA requirements-only those which have mortgages in$ured by HUO-FHA. Have all State requirements been met? {Verification can be obtsined through yoor State Real Estate Commission or other appropriate State agency with: authority to regulate condominiums). Have ell municipal building code requirements been satisfied? 9 Can You Afford lt7 Weigh your present income, ex­ penSM, and living style agaimt what they will be as a condominium owner. Ask The Seller to explain the condominium concept and how it applies to the particular development that interests you. The explanation will supply you with useful informa­ tion and help you determine the capability of those with whom you are dealing. Most States require licensed salesmen to be bonded. If you are negotiating with a salesman, determine that he is licensed before making any cash outlays. Is It Really A Condominium or something else you're buying? Not all townhouses, which surround a community area, are condominiums. The so-called planned unit developm~nt (PUO) or planned subdivision comprises a number of traditional estates (see Sketch No. 2 in Chapter 4) each of which has a membership interest in a separate property owned by a homeowners' association. There it no undivided interest in such en MTangement. A number of separate condominiums may surround another separate and independent area which contains streets and recreation facilities. The independent area will not normally be a pan of the common estate of any condominium. The area is normally on a separate tradi­ tional estate and owned by a nonprofit organization ( usoal· ly a corporation). All condOminium unit owners autornati· callv become members of the organization with ownership of their unit and will be responsible for maintenance and operation of the independent area. 10 NOTE: The term "air space estate" is often misunder­ stood and has been interpreted as being applicable only to vnits in a high rise structure. Such is not the case. The dwelling units may also be in a law rise, garden type, row structure or in semidetached or detached townhouse struc­ tures. A lar1}8 condominium may have a combination of different types of structures. The term air space is more fully explained in Chapter 4. Are The Expenses Underestimated? Look at the oper­ ating budget so you can determine whether or not the items listed for maintenance realistically compare with the kinds of maintenance costs you can anticipate as you tour the development: grounds; swimming pool, clubhouse main­ tenance; building exterior and common interior area main­ tenance; and street maintenance, if streets are part of the common area of the condominium and not maintained by the municipality. If the initial budget is underestimated it could mean an increase in assessments soon after you move in. Be sure the seller isn't understating operating expenses to expedite sales. 11 Are There Any Hidden leasehold Costs? Some condo­ minium developers retain ownership of pans of a project, usually the recreational facilities and sometimes the land, and lease them oock to the buyers for 99 years. It is imponant to be aware of the difference between full ownership (fee simple title) which givel the owners control of the common area and a leasehold which gives the lessee full control over the property under the lease. A developer or salesman may claim that more amenities can be provided by a leasehold arrangement and the condominium can be offered at lower prices. However, what can end does sometimes happen to the consumer is that he may be subjected to exorbitant rental charges initially and still higher rates over an extended period of time, in addition to the monthly assessment oo the condo-­ minium. Failure to pay the monthly obligations coofd result in complete loss of your investment through fore.: closure. · 12 . ' Chejloter II PITFALLS AND SAFEGUARDS iN CONDOMINIUM DOCUMENTS PITFALl-Yielding to high pressure and signing a Sales Contract or any other document before you fully under­ Stand its contents. SAFEGUARD-Don't take a chance on losing your life­ time savings by not carefully reviewing the sales contract. Look for anything that binds you unreasonably, or ratifies organizational documents you have not read (Enabling Declaration, Bylaws, etc.). Inquire about any liability that you must assume for extras, whether they are of the embellishment type or structural changes. PITFALL-Falling for a sales pitch that emphasizes the merits of equity buildup through ownership, but does not point out the responsibilities which accompany it. SAFEGUARD-Don't be gullible--Get all the facts and weigh them! PITFALL-Not knowing what to look for in the sales contract. SAFEGUARD-Look for clauses in your sales contract with conditions under which you could lose your deposit or downpayment. Read the contract carefully, taking your time. Take the papers home where you can make a proper analysis. If necessary, seek experienced assistance, legal or otherwise. Make certain you have plenty of time to make up your mind. · . 13 SALES CONTRACT (Subscription and Purchase Agreement) ENABLING DECLARATION , PITFALL-The Grantor must establish the condominium by making certain declarations butthere should not be any language permitting the Grantor/developer to .. lock" the condominium into long term agreements or self-sen,ing covenants. - SAFEGUARD-Object to any covenant that unduly re­ stricts owners' rights to make their own decisions through their Board of Directors or that affects marketability of their units. PITFALL-If a developer purchases a single condomin­ ium unit for his own use, • an owner he could prevent any change in the Declaration i'IOt to his liking. · . SAFEGUARD-Conditions, covenants, and restriCtions in the Deelaration should be reviewed with-koowtedge that 100 percent of the ownf#'S must agree to any change in the Declaration after it haS been legally recorded. PITFALL-Unnecessary control by the developer over an extended period of time, either by controlling language in the Declaration or by retaining ownership of 51 ·percent or more of the units. _ · SAfEGUARD-Read the doeuments earefully.· How long will it be. before a Board can be elected from among the owners? Has too much power been given to· a management company that is related in some way to the Oevetoper? 14 - PI TFALL-Policy-rnaking powers, delegated in the Oecla· ration to professional management companies, which preempt powers of the elected Board of Directors of the Association. In such a case neither the Board nor the owners would be able to change future undP.sirab!e situa­ tions. SAFEGUARD-Make sure the Declaration does no more than give the Board authority to hire a management agent who will be under its control. Since the Bylaws can be amended by the majority, delegations of authority can be set forth in it. Ask to see the Management Agreement. PITFALL-Right of first refllsal, in other words, any language restricting resale rights of owners. This may mean you cannot sell to whomever you choose but must first offer to sell to the Association. The Association may reserve the right to clear prospective purchasers before they are permitted to buy. This would contradict "fee simple ownership" which carries with it the undisputed right of disposal. SAFEGUARO-HUD-FHA does not permit any language that would restrict the resale rights of owners. While "right of first refusal" is not prohibited in some State statutes, it i,. specifical iy prohibited in condominiums hewing HUD-FHA insured mortgages. 15 BYLAWS PITFAll-As with the Enabling Declaration, care should be taken to determine that the Bylaws do not under-or overgovern the individual ·unit ow!'lers. They cannot be overly permissive with respect to the conduct of owners in areas where other owners would be adversely affected. At the same time, the powers of the Board should not become dictatorial in areas where it is not necessary to be so. SAFEGUARD-Determine that the basis for governing the condominium is within reasonable and equitable bound­ aries. Use restrictions and rules of conduct should be on the same basis for all unit owners. Bylaws implement fundamental pov..-ers given to the Association by the Declaration and should be clearly defined. 'If found undesirable, they may be amended by a majority vote of the owners. Bylaws should also contain the right for owners to petition for chang&s in the government of the condomin­ ium-including the right to remove an ineffective Board of Directors.· 16 Olapter Ill WHEN RENTAL PROPERTIES CONVERT TO CONDOMINIUMS It is extremely difficult for HUD-FHA to protect the government's interest or the consumer's interest-or in fact, for the consumer to proteet his own interest-in cases where an older bui!ding is being converted to condominium ownership. It is very difficult to determine the degree of deterioration that has taken place over the life of a structure. In condominiums financed with HUD-FHA insured mortgages, an engineering report is required to determine the condition and adequacy of the structure, the plumbing, the electrical and mechanical component5, tha heating plants, the roofs, and other strllctural elements. The estimated remaining life of these various elements deter­ mines whether they must be replaced immediately or whether a lump sum of cash should be placed in escrow to cover the deterioration that previously had taken place. In the latter case the HUD-FHA required replacement reserve would be collected on a monthly basis from the owners and added to the escrow account for the remaining life of the items, ·. The most important consideration to · be remembered when buying a condominium unit in a structure which has been converted from rentai or hotgl operation is that you Will not only become the owner of a dwelling unit but also a joint owner of the pipes, wires, and other common ~ T'IXJ~ elements. If rehabilitation is necessaay after the prop8rty · has been convertad from a single deed estc1te to & m~ ltipie number of deeded estates~ the ~w owners will have to bear the cost over and abOve their -purchase price. If the condominium has insufficient re5erve fu_nds_ to pay 'th*,! cOS!, the. money would have to be obtained_ by special assessment.­ agamst the owners, or from-a· tender~ If a loan is obtained all owners_ normally would have to sign the note Sf!curing _ the loan because it is they, _ and not the: Association, whO _ own the property. _ . _ . _ --- No~it~standing the reputable majoritY, -it sttould be k~t m mmd that there are some Spee:Uiatiw operaton who -· m1ght be attracted by the consumer characteristics of the cond~minium concept. Such operators might attempt to use 1t as a "dumping ground" for 1,1ndesi_rab!e propert~ that prove no longer marketable for rental· or investment purposes. _ ---· . __ , ·_ -_ · h'\ determining wheth~r or nCl it is po$Sif;>ltt .to oonvert a rental_.development to condominium· owneooipt .the JJ>prais­ al ~ould have included an engineering -rePort. ind*Cating wh1ch ~uctural, electrical, Or' ~haoical ~Cc)rnpommt~; m~st _ be_ repa1red or replaced. Rehabii;Qtion ·shoUld COmpriie two ,parts. restoration and im~~tts. The· property shOuld have been r~tQred t~ a "like:. new" condition and any deferred mamtenance corre<;ted .. lmpro~ Should u!l: include any that would enhance the livability and marketa­ bility beyond the original design of the property. These improvements might include t:1e addition of a clubhouse swimming pool, or other commiJnity facilities, and struc: tural changes to room composition. In multitamily com­ plexes, em~is must be placed on replacing inadequ.ste components or systems that are buried in walls and other common areas. There are maoy properties that could readily be con­ verted to condominium ownership with appropriate con­ sumer safeguards. Hure are some of the many factors to consider before you buy: • location • Neighborhood characteristics • Access to public transportation, churches, schools, stores and other facilities • Age of the property _ • How it is now managed and maintained • Condition qf property _(Was an engineering survey made and resultant work completed?) 19 • Extent of rehabilitation still needed {Has the develop­ ment received only a cosmetic refurbishing?) • Were improvements made to make it more condudve to long term occupancy? What about sound transmimon? • The reputation of the grantor {and any builder or developer he may use to make the conversion) • Experience of present tenants {Are the majority buy- ir.g their units?} . · • Is this the type of property that should be converted to condominium ownership? (It may be suitable to rent but is it !lllitable to bUy?) • Availab!e financing (How is it to be handled?) (.f'· ChapmiV THE CONDOMINIUM CONCEPT Traditional Real Estate-To understand how an estate ih real property is established under condominium law, consid­ er first how an estate in rea:l property is establi!ihed under the traditional reel estate l•w. using singfe home properties as an example. It is not necessary to know the geometry and other mathematical details of surveying to get .a general picture of how properties are established. By use of surveying tech­ niques a parcel of property (lot) can be located on the . surface of the ~arth by relating the boundaries of the parcel to previously estabiished bench marks ur other reference points. Once established (staked out) it can be recorded in a land records office for future identification. Sketch 1, which follows, shows what· phenomenon occurs at the property when the surveyor drives stakes into the ground at each of the four corners of a parcel of land. 21 ---------------. -------~-----------......,....----------'"""""!'------------------------ •I IBUENCf POINt INFINITY • ®-----------• I I I I I • EARTH'S CORE The lines in Sketch 1 which form the . real estate do not stop at the top or bottom of the stakes or the fence which may surround the property, but run upward to Infinity and downward to the oore of the earth. Between each stake an inviSible vertical plane is formed. All that is encompassed by the four vertical planes reprewnts a traditional estate in real pr()Pf"rti(-and partitions the estate from all surrounding proparty. The word ••estateu is used to explain die condo-_ minium concept becaute tem11 such as .. lot .. havi caused many people to think of only the lend · surfaoa as 1'8111 .nate. ,1·. :o.·-- 22 The property described in Sketch 1 could be subdivided into several smaller parcels (estates) as shown in the profile view (Sketch 2). The new vertical planes which would be established in the subdividing process would separate each estate from the other and would make separate ownership possible, This is typically what happens in a suburban subdivision. Sketdl 3 INfiNifY iARlH'S CORE Condominium Estates-Sketch 3 shows how horizontal planes can be used inside the traditional estate "A-'-S" · {shown in Sketch 2) to bisect the vertical planes. In effect, tht ,ertical planes shown in Sketch 2 are prevented from running their course (earth's core to infinity) by the horizontal planes and instead form invisible cubes of air space (frequently called air space estates). In actuality the vertical planes will visibly appear as the walls and horizon· tal planes will appear as the floor ~nd ceiling of a dwelling unit spate. All of the structural, land, and air space outside of the various dwelliny unit spaces is common to owners of all dwelling units. It is the common. space which extends outwardly in all directions to the boundary lines of the propeny that maintains the real estate characteristics of the units. If it were not ·for the fact that each unit has an undivided interest, in the common space it would be suspended in_ space without orientation to anything. 23 . ; ! ..... " Remember, even though the vertical pltlflfn of the "nit $paces no longer extend from the earth's cora to infinity 6 the property lin• of the condominium do. ln large, complex condominiums you must know the boundaries of your condominium to know where your undivided interest stops. The common space in a condominium is referred to by different names-common area, common elements, common property, and common estate. it will be referred to in this booklet as common estate. The cube of dwelling space will be referrad to a5 at; individual unit eState or unit estate. Condominium Property-Sketeh 4 shows another view of the condominium property "A-811 in which the units have been arc:hitocturaUy defineat8d and hlgaUy detcribid e1 ccndominium · estates. . Note that the SptN;tJ betWeen units ani/ the ~oniy, . ~ represented by the dotted llnis aroolkl the structure. Find. · ·' .. · ·· 1 1 ' the roof is all part of th11 comf!!On.·9;tllts, T:he-land iJiidH rhe·structure is•also common-estate ... ;• .: . . · ·· ·The plat ·of this property.· must· ·show . the exact location of th8 structure within the cOJTirnbn: .mte and the architec~ · tural planS· must show the sxat.'t location of aach_. unit. Within the structure. The enabling declaration muSt contain· not only a legal desci'ipt1on (Jf the bourn#lry u~ of the total property but also-of the intenlll' boundary jM!Us of the dwelling space;· in ott1er wards the i .. n·u~xposed SUrfaces · of the four ·walls, floor and :ceiling.. Tht cOndOinfnit~m comes into existf.!tce Wf1en .1fie ~~ ._.tOuathat.· •with ~-.. · 1he piat ood Pbms. are· ~·on· tit:* property. Too· frtfeet · ~s to convert a preVious single deed !.traditiom~U estate into·.·. 24 a multiple number of deeded dwelling unit estates within a common estate, the deed of which is shared by all the individual estate owners. Ownership Characteristics-As can be seen from the Characteristics foregoing discussions, condominium ownership differs from Evo4ving traditional ownership. Condominium ownership is actually Out Of The created by a special real estate law which permits individual. Concept dwelling unit estates to be established within a total and larger ·property estate. After aU of the individual unit estates have been described within the tOtal property estate, all of the property not so described, such as the land and structural parts of the buildings, bec:omes a common estate, to be owned jointly by the owner5 of the individual estates. Departures from this basic concept will be discussed un~r the section on. function of legal documents which .follows. Remember this: A condominium individual unit estate is not complete without its undivided interest in a larger common estate. . . Operating Characteristics-A condominium is usually operated on a nooprofit basis but does not ~iiy have to be. The common areas could contain commercial units. Each month an owner pays his mortgage payment (if any) to his lender. The payment usually will include a payment into his tax escro\N account. In addition he j)ays his share of the cost to maintain and openne the common areas to the Association. This payment normally includes a share of the haurd insurance which is paid in lump sum payments by the Associatip.n~ In some condomlniums he may also be required to share the cost to. fund reserve accounts. · ·· 25 Tax Characteristics-'-ln a condominium all taXes fH1d special assessments must be . levied against the individual units separately and not againsJ the who~ condominhc~m~ .. Also, each unit must be capable of bearing its own mortgage. Therefore, an o~er's title is nof endangered by default on the pan of other owners in meeting mortgage and real estate tax pa\1 n1ents, nor is· he· required to meet defiCiencies in such payments. . . . A condOminium owner has the same income tax advan­ tage as a conventional homeowner. He may deduct from his income, for Federal: tax purposes, the real estate taxes and mortgage interest he has pai4 during the y~r. 26 UNDERSTANDING THE FUNCTioN OF PRINCIPAL CONDOMINIUM DOCUMENTS Enabling Declaration-This document is called by a num­ ber of different names, such as Master Deed; Declaration of Conditions, Covenants and Restrictions; and Plan of Condo· minium Ownership. The term Declaration will be ·used in this booklet. The Declaration is the most important of all condomin­ ium documents. ·It is prepared by the Grantor or declarant who previously owned the property as a single deed estate. When the Declaration is recorded the property converts to a number of single deed condominium estate$. !t is in this document iflat departures appear from. the basic condomin: ium oorapt explained in Chapter IV. · Most departures result from the different characteristics of a . condominium development. However, many result from permissive laws which can be broadly interpreted. As indicated by one of the alternate terms used for the Declaration, it does enable ths condominium to come into exi5taf1Ce by leg::.tty establishing a condominium regime. As anether title indicates, it contains conditions, covenants and restrictions which, when recorded on the propsrty, become the constitutional law of the condominium. It giYSS author~ ......... ~, -... (...}' Qft; 27 -.: ------------------------------:--~-------~-~--- ity and power, through the bylaws. to the Board of Director1 of an Association of Owners to. regulate and administer the affairs of the condominium with regard to the common estate and all its elements and facilities. · This document also gives the Associ~tion Board a,thority · to a5S8$S and collect sufficient -money to maintain physi~ cally the common .mate and to maintain the financial stability of tht;J condominium. It proviclfts for le!Jil enforCEi­ ment of unpa1d monthly chafges or .,ecial assessments in the form of a lien ilgainst an individual unit estate. · - Logically, there I"''Uit be a section in the ~iori' which accu~y desctillel . the JJnits end tho common efaments. Without such a. description there \¥outd. be' no . basis on which title could be conveyed. tb the unit and there WQUid be no basis on wt'lich the common areas could . be governed. . · _ . ·_ If the common estate contains sud. -facilities as streets · ~ recreation aNa$ they will be ~ribed and any condi· t1ons, _conv~nants and restrictions gaverning thf!ir use will· be wr1tten mto the document. The buyer s.'lOulcl take care to determine that carnmunity ·facilities ar. acti.taUy a part of the • common estate or owne(f by a -nonprofit' organiza­ tion. of which he is a. mem~. ~nership. Qf areas Stich as _ parkmg lots and recreation facil_iti• might be wi~hheld by the Grantor and leased to the ¢ondominium :owners. _This type of leasing is not permitted.in<coodominiums financed by HUD·FHA insured loans. ·. . _: -· ·· 28 • ! :i Provisions for professional management, hazard and lia· bility insurance, replacement and operating reserves normal­ ly will be included. Patios, balconies and parking spaces may all be owned jointly, as a part of the common estate, but restricted to the exclusive use of the dweliing unit to which they are assigned. On the other hand, a balcony or ~tio may be included as a part of the unit description and be included in the "fee simple" {exclusive ownenhip) of the unit estate. . Commercial property may be· made a part cf the common estat!;l'. If such is done it probably would be leased by the Association and the income used to reduce the assessment.· On the other hand, some units may be declared commerCial. In this case the commercial income wouid belong to ftle owner. Obviously, ·to protect other owners, the Declaration should contain restrictions as to type of commercial operation.-· Another section of the Declaration establishes the undivided interest ~tage {ratio of a unit to the total of atl units). The. formula used to determine thl undivided interest in the Common estate of a condominium will affect (I) an owner's {.tereentage of owne~:ship of the common area. (2) the number of votM an owner has in matten · brought before the Association.· of OwMrs, (3) the amount an owner Will be QSSessed for maintenance and· operation of the common properties, (4) real estate tax assessed against - the unit OWIK'f and_· (5) the amount of montrt a lender wou'd be ~!Hng to toan on· the unit and its percentage of common' area.· . . ' ' . . -. A Stat~ c:0ndominium law may specifically require that cariain formula be used. One or a combination of the fol~(l&. il normally used when there is no State require- . ;TMtr:lti • .. . .. ' . . ·. . ' -. . , . · ,By ~~in fl(Opgrtip_n ~o -the ~ilJinai!y ~plished .. ~-tr.-the.~ Of; ~~qbt&ined by diVIding the val.~ _&)f ' Ji.Pile unit by the tf.~l valu~ of all units. . ,~: _ , _ -;Jiy -~ ~ip ptqponi()f). w the originally detonnioed IMni-area _,_, . .,._ Jtaction. or--percentage obtaioed by dividing the livifii ..... of a ~ogle unit by the total living araa of all .units. · -· . .. · --.. · · . · · in _. ll'lill• in the---·~ or pereentage obtained by ctividing me' total nurnt~er of units intf;l the figure 1 . . (w..n votirna is -~mined on this bB• the owner. of ~.h uni~ W()Uidhav~ton, ~.,,_ , · . . . · · . . · · :_: Sy:· ~ ~where s-. Jaw. psrmits, some. condo­ mini~m.t bnHmlt ratios oo_ the preesta~ishett market price ))f: a unit tq the: tgtal. tnirket ps:~ of aU ·~nits. - ·-. ,_ tn ·aft mstances. be .-.vo·f ......... -.:-irt'doc---..a.-t _ . . , . .._,, -......-. . . u .. ,.. .... u~ j ,, ~ ........ •t ~ •-.. at __ tiOmi ~date. This ~., -~fd'.~Y .Bffl!ct •. the-~ntided intereSt coupled to ;~. . your"uni~-•-«-your•pu~. · - \ =' ' . ~ t. ~ ·. ·. rr l l : ~ I -I f j i I ' I l I I l ·I 1 :T.he equal share ratio is used most frequently for deter;··· mmmg the assessment in "row" or "townhouse" condomin­ iums in which all dwelling units are on the ground level and there are no units above or below them or in cases where CO!"munity facilities are hi a separate nonprofit member· sh1p organization. (In co~miniums finanCed with HOD· FH~ ina,.recf ~oans, aaessme~ fer _common· expenses must be;1~ ·proportion to unit vdue.or living at1!aa~ :vmen·living umts extend over or. under. other units :or when the units a'! n~t of the Same approximate type . .Voting and oWfter· shtp m the common E!$tate, . however, may ~be · ballkf oo equal shares.) . · · T~e -~lar'atiO!l rnust · identify · and describe accurately the mdev1dual umts and the common areas as well as the ratio of the unit to the total of aU ~nits. When 1he ratios atiach . to their respective uniti, ·all unit· ownt1n n bound bytham ' •. . ' The c~ndominium regime is ~8bli$fie<fby· recOrding the Declaration, dedicating the property_ to a condominium plan ·of ownership. Exhibits attached to. and recorded with the. Declaration should include the plat and · plans of ·the proJect, the Bylaws of the Association of Owners and . the regulatory agreement, if. regulated by HUD~Fi-IA~ · 30 •. ' .; When the OedBation is recorded, it extends the condo· minium laws of the State in which the condominium is loarted to the PI:C)perty. It also establishes an Association which provides for · the use and maintenance of the common estate and for it to be governed by a Board of Directors elected from among the owners of the individual estates. Changes in the Declaration normally require con· sent of 100 percent of the _owner$. BylaWs· .... The internal· gowrnment of a condominium ~ is coutrolled by the Bylaws. They are some­ times called . the secondary ·laws of the condominium, as contrasted· tO · th_e ·primary or conStitutional laws set forth . in the DeClaration. All present or future owners, tenants, fu1ute ·~tenants, or their . employees,. or any Qther person 31 .-.. :--"':.·· )_' who might use the facilities of the-project in any manner, are subject to the regulations set forth in the Bylaws. The Declaration or Bylaws should contain a covenant that the mere acquisition or rental of any of the family units of the project or the mere act of occupancy of any of those units has the -effect of signifying that the Bylaws are accepted, ratified and will be complied with. - Bylaws establish a plan for governing the condominium and generally encompass the foilowing: • Administration of the condominium-will be done by the grantor until the first annual meeting at which time an Association Board or. Counsel of co,-owners will be elected by and from among the owners. • Owner responsibilities with regard to elections and special meetings-what constitutes a majority of owners and a quorum for doing business, method of voting, 1,1se of proxies, removal of an undesirable board and manner in which Bylaws can be amended. • The responsibility of Board officers and directors in carrying out the conditions, covenants and restrictions set forth in the Declaration-the number, qualifications, powers, duties and term of office of officers and directors. The Bylaws also set forth the rules for conducting meet­ ings, St.Jch as the order of business, quorurn proxies and number of votes required to legally resolve an issue. The B•tlaW5 will contain many details . that would be necessary to clearly establish the rights and responsibilities of the owners as· individuals and the individuals as co­ owners. Following is a list of some of those items: • Use and maintenanee of common areas • Establishment of an operating budget including general operating nr~rve and reserve for replacement of common elements · • Collection of monthly charges and special assessment including the enforcement of a lien for unpaid amounts • Notice to lenders of unpaid assemnents • Provision for profe$$ional management, if necessary · o Right of entry and rules of conduct with respect to the common areas • Rules for use of recreation facilitieS • fjre: and other hazard insurence (not on oW11er's personal property) • General liability insurance (not owner's personal lia- bility) . • Use o~ the dweJiiog units for residential pur~ and .rules of co~ct whtch would be necessary_ to presetVe·the asthetic appearance QJ the development and promote harmony-among the owners .· -· . • Compliance with State laws · \ ·~ · · • Compliance with HUD-FHA requirements (if any unit is financed with HUD-FHA insured mortgage _loan) 32 -:l .; ' Soma items listed above may appear in the Declaration ins+.ead of the Bylaws because it usually takes 100 percent of the owrien to amend the Declaration. It usuany takes ooly a simple majority to amend the Bylews. Obviously some rules should be flexible so they can be changed by a majority of owners. On the other hand ~~e changes which would have an effect on the owners' equities should not be c.-hanged without· each owner's consent. Subscription and Purchase Agreement (Conditional Sales Contract) -A· model form is used by developers in the solicitation for condominium purchasers seeking a HUD­ FHA insured mortgage. It is also required from purchasers obtaining conventional financing of individual units or those paying cash for a unit in a HUO regulated condomin­ ium. A budget and a schedule of estimated monthly assess­ ments is required to be attached. It is on the basis of.~ menu contained in these documents that condomm•um 33 . • ~ • ; '..1'1-~ •• purchasers ere solicited. It is, therefore, es.osential that the statement be accurate and that the expenses are not under­ estimated. A Subscription and Purchase Agreement · {regardless of whether or not HUD-FHA is involved) should: • Act primarily as a sales contract. When no separate information bulletin or prospectus is included, by reference it :hould fully disclose all pertine!'rt facts ooncerning the condominium. • Bring to buyer's attention the individual interest attached to his unit • Make known the existence of other condominium documents • lnclud~ language of a pmperly drafted sales contract appropriate fqr the State of jurisdiction • The Declaration, Bylaws and other legal documents are usually included by reference and may be explained to a limited degree in the sales contract. The sales contract, however, should not be used as a substitute for the detailed · provisions in those documents. . Regulatory Agreement (used in HUD-FHA regulated con­ dominiums) -The Regulatory Agreement is an agreement between the . condominium Association of owners a.nd HUD-FHA for the purpose of establishing eligibility for mortgage insurance. It is intended to conform a condomin­ ium project to certain requirements under Section 234 of the National Housing Act {including consumer protection). It also protects HUO-FHA's insured interest. 34. • -0 r-. l..,_ilf • < -•, ~ '"--.. ..;:• ~ Chaptw VI SECTION 234 (NATIONAl HOUSING ACT) AND THE CONSUMER Discussion of HUD·FHA condominium p.rograms has been purposely limited in the foregoing pages to permit the most fundamental explanation of the concept. HUO-FHA, however, does have condominium programs which are auth­ orized under the National Housing Act. The Section 234 Condominium Program was enacted by Congress to provide an additional means of increasing the supply of privately owned dwelling units. The Federal Housing Administration which is now a pan of the De~rt­ ment of Housinp .and Urban Development, was authonzed to insure private lending institutions against loss on high value loans. High value loans {approximately the market value of the property) reduced the init;al amount (down- 36 payment) a consumer would have to pay to purchase a home. Prior to the advent of mortgage insurance the ratio of a loan to the value of the property was held down by lenders. This naturally required the consumer to produce more cash for a higher downpayment. This resulted in a high risk of loss for the consumer but the lender's risk of loss through· default by the consumer was smaller. In a foreclosure and resale of the property the lender's chance of complete rflCovery was greater. HUD-FHA high loan-to­ value mortgage insurance, therefore, reduced the need for the high downpayment from the consumer by assuming the risk. The lender recovers from HUD-FHA and the consum­ er's loss is reduci'!rJ because he is not required to invest as much money. ·· · · When the mortgage insurance risk is assumed by HUO-FHA the need for regulations becomes apparent. Minimum propertv standards are necessary to assure that structures will not deteriorate and lose their marketability befr;:C'e the mortgage and HUD~FHA's insurance risk termi­ n~tes. The consumer receives a side benefit from this in that he usuaily acquires a better quality home for the same price he would pay for a home with no quality control. When the authority for condominium insurance was enacted by Congress the majority -of States had no law whlr;:h would enable condominiums to be treated as real estate. FHA at that time prepared a model form of enabling legislation which contained .a number of consumer protection pr~vision$. Some States adopted the suggested model verbatim but many did not. Variations have also 38 .i_, come about over the years by amendments to State laws. To provide additional consumer and government protection, FHA prepared a model form of Declaration, Bylaws, Sub­ scription and Purchase Agreement, Management Agreement, and other docliments which were required to be used in a condominium containing · a unit financed by an FHA­ insured mortgage. Condominium developers do not have to use HUD-FHA programs if nonfederaUy insured financing is available. In such cases the HUD·FHA mirlimum property standards and the documentary provisions are n<it applica· ble. As was prwiously pointed out, there are many reputa· bkt developers who will meet or exceed, the minimum property standards and will not, as Grantor, take advantage of the consumer in the documentation. The primary pur· pose of this booklet has been to help the consumer in makin9 an informed decision about buying into a condo­ minium develoJ)ment. If you have f()Und the condominium which matches your You life style, you should now appraise your own attitude as an Owner toward the purchase. First and foremost, you have certain responsibilities and must live up to them. As a homeowner, take pride in your surroundings. Be concerned about how v."811 ·your unit is maintained, as well as the maintenance of the entire commpn area. If, like most people~ you have undertaken a mortgage obligation, be certain it's fulfilled. Budget your expenses in order to handle your monthly assessments. 1 - Don'! f~rget that, as a condominium owner, you have certam nghts over and above the average renter. You can assume an active role in the Association, on the Board of Directors, merely by running for office. You have as much chance as anyone else of being elected. At the very minimum, you should participate in the meetings and vote on the issues, which can directly affect your day-to-day livir•g conditions. You, with others can change things. People who seek a similar voice in ;ental o~era~ions rarely find the means that so effectively legalize th1s nght as do the documents which establish a condomin­ ium .. Dor:''t tak~ for granted your opportunity to vote on the mtemal affa1rs of your condominium. . Don't acquire an. apathetic attitude. The extent of your Interest and the mt~rest of other owners is the true measure of a successful condominium. 38 ., ' ., ' . ~ ·~ GLOSSARY ABSTRACT -A summary of the history of the legal title to a piece of property. AMORTIZAT~ON-Provision for gradually paying off the principal amount of a loan, such as a mortgage loan, at the time of each payment of interest. For example, as each payment toward principal is made, the mortgage amount is reduced or amortized by that amount. APPRAISAL-An evaluation of the property to determine its value. An appraisal is concerned chiefly with· market value-what the unit would sell for In the market place. ASSESSMENT (Operatins;)-Proportionate share of the bl!dgeted annual cost to maintain physically the common areas and elements of a condominium and to maintain sufficient reserves to assure financial stability. The annual assessment is reduced to monthly charges payable to the Association of owners. ASSESSMENT (Speciai)-An assessment for some special purpose or because of inadequate budgeting of operating ex~ _ CAVEAT -A warning or notice to 'take heed such as a clause in a document which is meant 1t0 be a warning. CERTIFICATE OF TITLE-Like a car title, this is the paper. that signifies ownenhip of a unit. It usually contains a legal description of the unit and its relationship to the condominium. 39 What Those Words Mean CLOSING COSTs-Cost in addition to 'the price of a unit and its undivided interest in the common estate including mortgage service charge, title search, insurance and transfer of ownership charges paid each time the unit is resold or refinanced. CLOSING D.\ Y-The date on which the title for property passes from the seller to the buyer and/or the date on which the borrower signs the mortgage. COMMON AREA OR COMMON ESTATE-Generally, this encompasses an of a condominium which is not specificallv delineated and described as dweiling or commercial units. COMMON OR UNDIVIDED INTEREST -Joint ownership with other fee owners of all land and areas within the structures that are not described as individually owned units. The interest is defined by a percentage of a total area but not actually divided into individual pans. CONDOMINIUM ASSOCIATION. ASSOCIATION ·OF OWNERS, CONDOMINIUM ASSOCIATION BOARD OF DIRECTORS, OR COUNCIL OF CO..OWNERS-The. governing body of a condominium, elected by and twrri · among the owners upon conveyance of titles to the individ­ ual ownen by the Grantor. Its authority to operate comes from the Declaration. It must operate within the frame­ work of the Bylaws. CONDOMINIUM REGIME-The mode of Si!lf-rule estab­ lishP.d when condominium documents are recorded. The tern1 also refers to all the documents necessary to legally constitute a condominium and to permit it to operate as such. · CONVEY-To transfer title from one person to another. COVENANT -A promise usually in the form of a recorded agreement when used as a part of the language of real estate. COOPERATIVE HOUS!NG-A housing c~poration or a group of dwellings owned by residents and operated for the benefit of resident members of the corpor~tion by their elected Board of Oirecton. The resid~nt ~upiu but does not own his unit. Rather, he owns a st-;~re of stock or membership certificate in the total enterprise. OEClARATION~A documem which contains conditions, covenants and restrictions governing the sale, ownership, use and disposition of a property within the frameYII'Ork of applicable State condominium laws. ; ' DEED-A document used to transfer a fee simple interest in the unit together with an undivided interest in the common estate in the case of condominium title transfers. DEliNEATE-To describe the physical boundaries of a dwelling unit in a condOminium. DEPRECIATION-A decline in tb~ value of a dweUing unit as the result of wear and tear, adverse changes in the neighborhood and its patterns, or for any other reason.\. 40 ·I i -~ ~· . ···~- EASEMENT RIGHTS-A right of way granted to a person or company· authorizing access to or over the owners land. Water sewer and electric companies often haw easement I ' rights across pnvate property. EASEMENT _:_A right· or privilege a person or group of people may have in property owned by one or more other persons. ENCUMBRANCE-A claim Of lien attached to real prop~r- ty, such as a mortgage or unsatisfied debt incurred wtth respect to the property. . . . EQUITY..,..Increase in value of ownershiP mt~est m t~ unit as the owner reduces his debt . bX paymg off h1s mortgage, and from market vaiue apprectatton. ERNEST . MONEY OR SUBSCRIPTION Mt;>NEY-The deposit money given to the seller by the potentll!l buyer to show that he is serious about buymg_ the d~lhng: If the deal goes through, the earnest money •s applied agam~t the downr..uvment. If the deal does nc;>t go through. through no fau!t of ~he seUer, it may be forfetted. . ESCROW FUNDS-Subscription or do·wop~y_ments r~utr~ to be held unused, until the condommtum reg1me ts recorded on the property and titles are conveyed. to ~h buyer Escrows are usually used in each resale Sttuat1on. The deed is held in escrow until all conditions of the sale (including any prepayments) have been met. Other escrow accounts are used to accumulate monthly tax and insurance payments until the taxes and insurance are ~tu~lly ~ue. GRANTOR-The owner of the prope':'y .~uch ts ~mg sub­ divided into a multiple number of tnthv1dual untt estates under a condominium regime. • . LATENT. DEFECT BOND-One type is an MSUranc~ requtr­ ed by HUD-FHA that defects tft:te .to faulty matenals and workmanship, which are found Wlthtn a year of the date of comptetion. wm be corrected. . , LEASEHOLD INTEREST-The nght to use a . pro.perty under certain conditions "~'hich does not carry w1th 1t the rights of ownenhip. · LrABILJTV AND HAZARD INSURANCE-Insu.ra._,ce to protect.· against negligent actions of the ~SSOCI~t1on of oWilers 8nd damages cauSGd to property by flfa, wmdstorm and other common hazards. . . LIEN~A claim recorded against a property as secunty for payment of a just debt. . . i MORTGAGE COMMITMENT-Th~ wr!tten nottce from the bank or other lender $8Ving that 1t wall advance the mort­ gage funds· in a specified amount to enable one to buy the ~~TGAGE DIScOUNT "POINTS"-D~sco~nts. (~oints) are a OM-time charge asSessed by a Jendmg IOstltUtiO':l.tO increase the yield from the mortgage loan ~o a compet1t1ve position with the yield from other tvt:t.!S of tnvestments. 41 MORTGAGE INSURANCE PREMIUM-The payment made by a borrower to the iender for transmittal to HUD-FHA to help defray the cost of the FHA mortgage insurance pro­ gram and provide a reserve fund to protect lenders against loss in insured mortgage transactions. In the case of an FHA insured mortgage this represents an annual rate of one-half of one percent paid by the mortgagor on a month­ ly basis to FHA. Non-government mortgage insurance com­ panies have a similar premium. MORTGAGE lOAN (INDIVIDUAL UNITS)-The amount loaned by the lender (mortgagee) to the individual owner (mortgagor) necessary to purchase the. unit. MORTGAGE LOAN ( PROJECT)-Provides money to the builder/developer to acquire the land and construct the condominium. This loan should be paid off in full by the cash and individual mortgage loans that come into existence when all sales have been consummated. At such time the condominium individual units must be free and clear of all liens and all individual unit mortgages must be first mort­ gages assumed by owners of the units. MORTGAGE LOAN (HUD-FHA INSURED)-·The lender is insured by HUO-FHA against default by the mortgagor to induce the lender to lend a larger sum to the purchaser. The loan limits are established by HUD-FHA. MORTGAGOR-The homeowner who applies for, receives and is obligated to repay a mortgage loan on a property he has purchased. MORTGAGEE-The bank or lender who loans the money to the mortgagor. PLAT AND PLANS-Drawings used by surveyors and archi­ ~ts to show the exact location of utilities, streets, build­ mgs and units within the buildings,· in relation to the bo~ndary lines of the total property. They may also show umts, common areas and restricted areas. PREPAID EXPENSES-The initial deposit at time of clos­ ing, for taxes and the subsequent monthly depo,;its made to the lender for that purpose. Hazard insurance is not a mortgage payment under the individuai unit mortgage. REPAIR AND MAINTENANCE-The costs incurred in replacing damaged items or maintaining housing systems to prevent damage. In a condominium the owner is responsible for repairirig and maintaining the dwelling unit and the condominium Association is responsible for repairing and maintaining the common areas. The owner only pays his proponionate share of the cost to the AsSociation. RESERVE FUNDS (REPLACEMENT)-Funds which are set aside in estrow from monthly payments to replace common elements, such as roofs, at some future date. ~ESERVE FUNDS {GENERAL OPERATING)-Funds . which are accwnulated on a monthly basis to provide a cu.shion of capital to be used when and if a contingency anses. 42. STATUTE-A law passed by a legislative body and set forth in a formal document, for example the Horizontal Property Act l)f Puerto Rico. TAXES'~Local real estate assessments which are levied on th:: individual units and not on the condominium Associa­ tion. TITLE---The evidence of a person's legal right to possession of property, normally in the form of a rlee_d.. ~ . . TITLE COM,PANV -A company that spec1ahzes m msunng title to property. TITLE INSURANC!:S-Special insurance which usually pro­ tects lend~rs against loss cf their interest in property due to unforeseen occurrences that might be traced to legal flaws in previous ownerships. An owner can protect, his i~terest by purchasing separate coverage. A mortgagee s pohcy, as distinguished from an owner's policy, usually pr?tects only the lender in an amount equal to the outstanding balance of the mortgage loan. . TITLE SEARCii OR EXAMINATION-A check of the title records, generally at the local courthouse, to make sure you arc buying the dwelling from the legal owner and that t~ere are no liens, overdue special assessments, other .clan:ns, outstanding restrictive covenants or other defects m t1tle filed in the recoi'd. UNDIVIDED INTEREST -In condominium law, the joint ownership of common areas in which the individual per­ centageS are known but are not applied to separate the areas physically. This situation is similar to the j~int ownership of an automobile or home by husband and w1fe. UNIT VALUE RATIO-A p,rcentage developed by divid!ng the appraised value of a unit by the to~al valu~ of all umts. The percentage attaches to the dwelhng umt and deter· mines the percentage of value of the common er.ate attached to that unit, the percentage of votes the owner of the unit has in the gOvernment of the common estate, and the percentage. of operating costs of the common area the respective unit owner must bear. · 43 FIELD OFFICE JURISDICTIONS OF HUD REGION I Regional Administrator Am. 800, John F. Kennedy Federal Building Boston. Massachu$elts 02203 Tel. (617) 223 4066 AREA OFFICES CONNECTICUT, HARTFORD 06105 999 Asylum Avenue Tel. 12031 244-3638 MASSACHUSETTS, BOSTON 02114 Bulfinch Building 15 New Chardon Street T-el. (61'11 223-4111 NEW HAMPSHtRE. MANCHESTER 03101 Davaon Building 12:t0 Elm Street TeL (6031 669-7681 INSURING OFFICES MAINE, BANGOR 04401 Federal Build•ng and Post Office 202 Harlow Street Post Office Box 1357 Tel. !207J 942·8271 RHODE 1SLAND. PROVIDENCE 02903 330 Post Office Annex Tel. (401) 51.8-4351 VEAMONJ. "1l,JRLINGTON 05401 Federal Bt.. 'd · J Elmwood~ <. oe Post O!fice ... -' 9S9 Tel. 18021 862-6501 REGION II fl~gional Administrator 26 Federal Pl~za, Room 3541 New York. New York 10007 Tel. !2121 264-8068 AREA OFFICES NEW JERSEY, CAMDEN 08103 The Parl<ade Build•ng 519 Federal Street Tel. 16091 963-2541 NEW JERSEY, NEWARK 07102 Gateway 1 Build•ng Ra·~mond Pl<Jla Tel. 1201 I 645-3010 NEW YORK, BUFFALO 14202 Grant Build1119 · 560 Main Street Tel. 0161 842-3510 NCW YORK, NEW YORK 10019 666 5th Avenue Tel. 1212)974-6800 COMMONWEALTH AREA OFFICE PUERTO RICO. SAN JUAN 00936 Post Office Box 3869 GPO 255 Ponce de leon Avenue H•no Rev, Puerto ·Rico Tel. (809) 765·0404 iNSURING OFFICES NEW YORK, ALBANY 12206 West\jille North JO Russell Road Tel. 15181 472-3&67 REGION Ill Regional Adminisrratnr Cvrtis Buildmg 6th and Walnut Sueets Philitdelph•a. raon\ylvania 19106 Tel. 12151 597-2560 AREA OFFICES DISTRICT Of COLUMBIA. WASHINGTON 20009 Uni\reaal North Build1ng 1875 Connecticut Ave. N.W. Tel. (2021 382-4855 MARYLAND, BAlTIMORE 21201 Two l;lopl<.~n~ Plaza Merca.lt•le Bank and Trust Building Te1. {3011 962-2121 PENNSYLVANIA, PHILADELPHIA 19106 Curtis Building 625 Walnut Stretit Tel. ~21!il 597-2665 PENNSYLVANIA, PiTTSBURGH 15212 Two Allegheny Center Tel. {4121 644-1802 VIAGlNIA. RICHMOND 23219 701 East Frankiin Street Tel. !8041 '782-2721 INSURING OFFtCES UELAWARE, Wli.MII\'GTON 1S801 Farmers Bank Building 919 Market Street, 14th Floor Tel. 13021 51f-6330 W£ST VUNtNIA. CHARLESTON 25330 New Feder&! Build:ng 500 Quarrier Street Post Office 8oK 1948 Tel.' !3041 343-6181 REGION IV JW.giO!\al Aamioistrator Room 211, Pershint Point Plata 1371 P&«:httlN Street, N.E. Atlenta, Georgia 30309 Tel. 1404) 526-5585 .AREA OFfiCES ALABAMA. B!RMINGHAM 35233 Oamel 8uittftng 1 S South 2Qth Su eet Tel.· 12051 325-3264 FLORIDA, JACKSONVILlf 3l20C P!!ninsular Plaza 661 Ri>ler~•de A~enue Tel. 19041 791-2626 GEORGIA, ATLANTA 30303 Peachtree Center Bu,ld•ng 2.10 Peachtree Street. N.W. TeL (4041 526-4576 KENTUCKY, LOUISVILLE 40201 Children·~ Hospital Foundation Bldg. 601 South Floyd Street Post Office Box 1 044 Tel. 15021 582 5251 tAISSISSIPPI, JACKSON 39213 \01-C Third Floor Jackson Mall 300 Woodrow Wilson Avenue. W. Tel. (6011 366·2534 NORTH CAROLINA. GREENSBORO 27408 2303 West Cone Boulevard Northwest Pl.n4 TP.I. !9l9l 275·9\ 11 SOUTH CAROLINA. COLUMBIA 29.21)2 180 1 Mam Stn~et Jefferson Square Tel. 18031 765-5591 TENNESSEE. KNOXVILLE 37919 O!ll' f-Jonhshore Budd•nQ 1111 Northsl>ore Drwe Tel ~61515848527 INSURING OFFICES FLORIDA. CORAl GABLES 33134 3001 Ponce d~ Lecn Boulevard Tel. !3051 445-2561 FLORIDA, TAMPA 33609 4224-28 Henderson Boulevard Post Office Bo)( 18165 Tel. {813! 228·2501 TENNESSEE, MEMPHIS 38103 28th Floor. 100 Nonh Ma1n S.t<l!el Tel. 19011 534-3141 TENNESSEE. NASHVILLE 37lo3 1717 We~~ £11~ Bu>ld,ng · Tel. (515) 749-5521 ·-.' 46 REGION V Regoonal Admonistr'.I!Or 300 Soutto Wacker Drove Chocago, lllonoos 60606 ToN. (3121 353-5680 AREA OFFICES ILliNOIS, CHICAGO 60602 17 North Dearborn Street TeL (312) 353-7660 INDIANA. !NOIANAPOUS 46205 W•llowbrook 5 8ut!do•19 4720 Koogswa'i" Drove Tel. 1:1171 633-7188 MICHIGAN, DETROIT 48226 5th Floor. First Natoon,ll 6oJIIdong 660 Woodward Avenue f<>l. 13131 226-7900 MINNESOTA, MINNEAPOLIS-ST. PAUL Groggs-M,dwav B•Jildong 1821 Uno\ierslty A•Jenue Sl. P.:;wl. Monn<osota 55104 Tel. 16121 725-4701 OHIO, COlUMBUS 43215 60 EaH Main Street Tel !514) 469-7345 WISCONSIN, MILWAUKEE 53203 744 Nonh 4th SHeet Tel. !4141 224-3223 INSURING OFFICES ILLINOIS, SPRINGFIELD 62704 lincoln Tower Plaza 0:.24 South Sl!colld Street, Room 600 Tt>l. 12171 525-4414 MICHIGAN, GRAND RAPIDS 49SOS Nort"brook Building Number 11 2922 Fuller Avenue, N.E. Tel. (6161 456-2225 OHIO, CINCINNATI 45202 Federal Office 8uoldong 550 Main Street. Room 9009 Tel. 1513~ 684-2884 OHIO, ClEVELAND 44114 7?7 Rockwell Ave. fe!. !2161 522-4065 48 REGION VI Regional Adminis:rator Room 14835, New Dallas Federal Suildino 11 00 Commerce Street ~ Dallal>, Texa<> 75202 Tel. 12141 7491401 AREA OFFICES ARKANSAS, LITTLE ROCK 72201 Room 1490, Union Nationa: Plaza Tel. (501 l 378-540l LOUISIANA, NEW ORlEANS 7G113 Pial a T olll.-er 1001 Howard Avenue Tel. ·15041 527-1003 OKL.4HOMA, OKLAHOMA CITY 1Ji01 301 North Hudson Street Tel. {4051 231-4181 TEXAS, DAllAS 75201 2001 Bryan To~~~o~>r, 4th Floor TeL !214) 749-1601 TEXJ\$, SAN ANTONIO 78285 Kalliron Buildong 410 South Main Avenue Post Olloce Box 9163 Tel. 15121 125·5511 INSURING OFFICES LOUISiANA, SHREVEPORT 71101 514 Aicou-Boewster Build•ng 425 M•lam S!leet Tel. 13181 425-1241 NEW MEXfCO, ALBUQUERQUE 87110 62S Truman Street, N.E. Tel. 1505) 76£j-3251 OKLAHOMA, TUlSA 74152 1708 Utica Square Post Office Box 4054 Tel. <&181 581-7435 TEXAS, FORT WORTH 76102 819 Taylor Street Room DAOl Federal Buiid;ng Te!. l817l 334-3233 TEXAS,HOUSTON77~ Two Greenway Plaza East. Suite 200 Tel. (7131 226-4335 TEXAS, LUB80CK 79408 Courthouse and Federal Office Bui!dong 1205 T el«as Avenue Post Office Box 1647 Tel. 18061 747·3711 REGION VII R~ional Administrator Room 300 federal Offic~ Buildmg 911 WalnUt Street KanSM Citv, Missouri 64106 Tel. 18161 374-2661 AREA OFFICES KANSAS, KANSAS CITY 66101 Two Gateway Centti 4th and State Stree~~ Tel. 1616) 374-4355 MiSSOURI, ST. LOUIS 63101 :7.10 Nor til ! 2th Street Tel. (314} 622-4160 NEBRASKA, OMAHA 68106 Univ~ Building 7100 West ::".enter Roild Tel. t~02Ft2l-930l INSURING OFFICES IOWA, DES MOINES 50309 2\0 Walmn Street Room ~59 Federal Building Tel. 15151 284-4512 KANSJ.S, TOPEKA 66603 700 Kan~ Avenu~ Tel. 19131 234-8241 REGION VIII Retional Administrator Fidttrat Building 1961 Stout StJWt Denver. Color &do 80202 Tel. 13031 837~881 INSURING OFF1C£S COLoRADO, DE:NVEA 80202. 4th Fi9of, Title Building 909 · Utti Street Tel. 1303t sl7-:i!441 MONTANA, Hf:LENA -.o1 &16 Hel-Avenue Tel. 1406t .... 2-3237 NCRTM OAJ(OTA. FARGO 51102 . fedtfd 8uitdint . 6S3 · 2nd Avenue N. . Posi Off~ Box 2433 Tet. t70H 237-5t36 .. '._ .. SOUTH DAKOTA, StOUX FALLS 57102 119 F'l'deral 6ulldmg U.S. Courthovse 400 S. Philltps Av;wue Tel. 16051 336-1980 UTAH, SALT l4KE CITY 84111 175 Soulh State Street P~t 'tHfice Box 11009 Tet. 18011 524·5237 WYOMING, CASPER 82601 FIIH!eral Ollice 8utld1119 100 East B Stl~t Pou Office Box 580 Tel. 13071 265-5550 REGION IX At!9iona1 Admimsarator 450 Golden Gate Avenue Pou Office BaK 36003 Sar. Francisco. California 94102 Tel. 14151 5&13-4752 AREA OFFICES CALIFORNIA, LOS ANGELES 10057 2500 Wilshire 8ooJievard Tef. 12131 688-5973 CALIFORNIA, SAN FRANCISCO 94111 1 Emblllrcadero Center Suite 1600 Tel. f4tij~ 566·2238 INSURING OFFIC~S AAtZONA, PHOENIX 85002 244 Welt Otbom Road Post Office Box 1JII&l' .. Tet 16021 261~1 .· CALIFORNIA, SACRAMENTO 111108 801 I S~t Pw~ Oflice Box 1918 TeL 19161 449-3471 CALIFOftNIA. SAN OfEGO 12112 110 WHt C Stfftt Pot.t Office Box 2648 Tel. 17141 293-5310 CALIFORNIA, SANTA ANA 12701 1440 E•t First St!'tet . , Tal. 1714) 836-2451 MAWAU, HONOLULU 98113 1000 Bitl'lop Street, 10th FIOO¥ Poll Offia Box 3377 Tel. C8081 546-2136 HEY ADA. RENO 81606 1050 Bible Wrt Post Office 80111 4 700 · . Tel. 11021 784-5356 47 i i ; . ~ ' . j . ~ r f II i 't I ! i .l I I . I ! I ! I ! ! I ! I r . I. I j REGION X Regional Adl"'linistrator Arcade Pl<!lil Buifd;ng 1321 Secx.nd Avenue Seattle, Wa:;hington 98101 Tel. l2C61 442·S4i5 AREA OFFICES OREGON, PORTLAND 97204 520 Southwest 6th .ll.venue Tel. 1503) 221·2558 WASHINGTON, SEATTLE 98101 Arcade Plata Building 1321 Se<:ond Avenue Tel. 12061 442-7456 INSURING OFFICES ALASKA. ANCHORAGE 99501 334 West 6th Avenue Tel. 19071 212·5561 Ext. 791 IOAHO, BOISE 83707 331 Idaho Street · Post OHice Box 32 Tel. 12081 342-2711 WASHINGTON, SPOKANE. 91201 West 920 Riverside Avenue Te!. 15091 4~571 u.s. lli:IV,;RNiiE!fr P'RIIITINO CFFIC"E ' 1974 0 -5i7 ·693 T I -U'l 0 3 3 POINT SIZE 4 6 18 10 12 14 2xbiy GmnOc Y5o5o Elt9g 7n34o K2b8t D6fmh 9ss9d Wcuzl llcdg 6Y3sl Okjdg FUTURA NEWS GOTHIC K2b8t Okjdg 14 4ef8k GmnOc Zlo6x Ge92 12 7n34a 6Y3sl 10 Y0r8j A7o7q Oelvf 2xbiy 8 9ss9d Llcdg 33q7n Elt9g 6 4 POINT SIZE IMAGE EVALUATION TEST TARGET (MT-2) \\ . ·. :. ~ . 1.0 II u il!IIILS ill= 11111 1 ' 25 lill1'·4 111111. 6 PHOTOGRAPHIC SCIENCES CORPORA liON 770 BASKET ROAD P.O. BOX 338 WEBSTER, NEW YORK 14580 (716) 265-1600 T