Condominium Document Review & Due Diligence Flashcards
7 cards from real CCS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Condominium Document Review & Due Diligence flashcards as text
What is the primary concern for a buyer when a condominium association's reserve fund is significantly underfunded?
Answer: Owners face a higher likelihood of special assessments to fund major repairs and capital improvements
An underfunded reserve means the association lacks sufficient savings for future major repairs, making special assessments far more likely when roofs, elevators, or other components need replacement.
What type of coverage does a condominium association's master insurance policy typically provide?
Answer: Coverage for common areas, the building structure, and general liability for the association
The master policy covers common elements, the building structure, and association liability, while individual owners need separate HO-6 policies for personal property and unit-specific improvements.
What does 'bare walls in' coverage mean in a condominium master insurance policy?
Answer: The policy covers the structure and common areas but excludes interior fixtures and improvements within individual units
'Bare walls in' means the master policy covers from the exterior walls inward to unfinished interior surfaces only, leaving fixtures, flooring, cabinetry, and owner improvements uncovered.
When reviewing a condominium association's budget, what does a very high percentage of income allocated to operating expenses versus reserves suggest?
Answer: The association may be underinvesting in reserves, risking underfunding and future special assessments
If most association income is directed toward operations with little going to reserves, the association may not be accumulating sufficient savings for future capital expenditures.
Which condominium document would a buyer review to determine whether restrictions exist on renting out the purchased unit?
Answer: The Declaration of Condominium or bylaws containing rental restriction provisions
Rental restrictions such as lease approval requirements, minimum lease terms, or rental caps limiting the percentage of units that may be rented are typically codified in the Declaration or Bylaws.
What does it mean if a condominium project has reached its 'rental cap'?
Answer: The maximum allowable percentage of units being rented has been reached, potentially restricting new rentals and affecting buyer financing options
Many associations and mortgage lenders require that no more than a set percentage of units be rented; reaching the cap can restrict new rentals and limit conventional mortgage availability for buyers.
What is a 'material fact' that a CCS professional or seller must disclose in a condominium resale transaction?
Answer: Any known information that would significantly affect a buyer's decision to purchase or the price offered, such as pending special assessments or structural issues
Material facts are facts that a reasonable buyer would consider significant, including pending litigation, planned special assessments, or known physical defects that affect value or desirability.