Q: My daughter bought a condo several years ago. Her condo is located in a suburb of Chicago. Last summer, she was notified that the complex was going to be reconverted to rentals. She was offered a price for her place along with an extra amount if she committed to selling by a certain date.
My daughter does not have a lawyer. This management company for the condo says it will do the closing. She has not been able to get notes about the sale from the condo association and does not know what the closing costs will be. Also, she pays her monthly homeowners association dues and wants to know how much money is in the association. What should she do?
A: During the last several years as rental rates have increased, real estate investors have snapped up condominium buildings and converted them into apartment rentals. Usually, the price paid by the buyer (the investor) is substantially higher than the market price a condominium owner would receive if they sold their condominium in the open market.
While many condominium unit owners may not want to sell their homes, they may not have a choice. When a condo association votes on whether to sell, all of the owners must go along with the vote if a certain threshold of owners is reached.
You should know that there are various limitations on when a condominium association can agree to sell to a buyer. For one, the association documents may require a vote of a majority or supermajority of the unit owners. For example, a condominium association’s governing documents may require that 66%, 75% or more of the owners vote to sell the building to a developer. Some municipalities and some state laws may require an even higher percentage vote to permit the sale. In Chicago, for example, investors must get 85% of the owners to vote in favor of the sale.
You should also know that those votes are generally counted using the percentage ownership each unit has in the association to tally up the votes. So, a vote from the owner of a penthouse, who owns a larger percentage stake in the property would count for more than someone who lives in a one-bedroom unit on the second floor. You can easily wind up with a situation where a minority number of owners own a sufficient percentage of the ownership to allow the sale.
When it comes to the costs of closing, frequently those costs are on par with what a unit owner would pay if they were selling their unit on the open market. The purchase contract from the buyer may include some relevant facts relating to who will pay for what in the transaction, but the association should share that information along with other details of the transaction with the homeowners prior to the vote approving the sale of the association.
On the question of the money the association has on hand, in all of the deconversions that Sam has worked on, the association sells the real estate — the building — to the buyer. The buyer does not buy the association, nor does the buyer get the funds held by the association. Sometime after the sale, any excess funds held by the association, after payment of all association expenses, gets paid out to the former owners using their percentage ownership of the association.
Once your daughter receives all of the information on the sale from the association, she can talk to a real estate attorney if she has any questions. Frequently, the information provided by the association is comprehensive, and includes details about the transaction, costs and other financial information that might be relevant to each owner. But, if she has questions and doesn’t get answers from the association, she might get more explanation from an attorney that has worked on transactions similar to what she is going through.
Finally, for those who are renting in a building that is going through (or went through) a deconversion, and are having trouble getting the security deposit back, there are some things they can do. Good luck and thanks for your question.