CCS Condominium Document Review & Due Diligence 2 — Questions and Answers
Question 1: Which of the following is a key element a buyer should examine in condominium meeting minutes during due diligence?
- The names and contact information of all current residents
- Discussions of pending special assessments, litigation, or major repair projects (Correct answer)
- The property management company's internal employee roster
- The association's planned social and recreational event calendar
Correct answer: Discussions of pending special assessments, litigation, or major repair projects
Meeting minutes often reveal discussions about financial difficulties, disputes, upcoming major repairs, or proposed special assessments that significantly affect a buyer's decision.
Question 2: What does the term 'percent funded' refer to when reviewing a condominium's reserve study?
- The percentage of owners who have paid their monthly dues on time
- The ratio of current reserve fund balance to the fully funded reserve amount (Correct answer)
- The percentage of the annual budget formally allocated to the reserve account
- The proportion of the building's systems that have already been renovated
Correct answer: The ratio of current reserve fund balance to the fully funded reserve amount
Percent funded compares actual reserve balances to the ideal fully funded amount, indicating whether the association has sufficient savings for anticipated future repairs.
Question 3: What is a 'right of first refusal' that may appear in condominium governing documents?
- The association's right to reject buyers who fail a background or credit check
- The association's or existing owners' right to purchase a unit before it can be sold to an outside buyer (Correct answer)
- The seller's contractual right to refuse any offer below the original listing price
- A buyer's right to cancel the purchase contract within a specified review period
Correct answer: The association's or existing owners' right to purchase a unit before it can be sold to an outside buyer
A right of first refusal gives the association or other owners the opportunity to match a buyer's offer and purchase the unit themselves before it is sold to a third party.
Question 4: In condominium due diligence, what is the significance of reviewing the association's unit owner delinquency rate?
- It shows how many owners have received violation notices
- A high delinquency rate indicates financial stress that may increase fees or trigger special assessments for paying owners (Correct answer)
- It reveals the demographic breakdown and average income of unit owners
- It shows the frequency with which the building has undergone formal inspections
Correct answer: A high delinquency rate indicates financial stress that may increase fees or trigger special assessments for paying owners
A high delinquency rate means fewer owners are paying dues, creating a revenue shortfall the association may cover by raising fees or levying special assessments on paying owners.
Question 5: Which of the following best describes the purpose of condominium bylaws in relation to the Declaration?
- Bylaws legally create the condominium and define unit boundary lines
- Bylaws establish operational procedures for the association, including elections and meeting rules (Correct answer)
- Bylaws list the specific conduct rules and restrictions residents must follow daily
- Bylaws provide the architectural and engineering plans for the building structure
Correct answer: Bylaws establish operational procedures for the association, including elections and meeting rules
Bylaws govern how the association operates internally, including how directors are elected, how meetings are conducted, and what powers the board holds, supplementing the Declaration.
Question 6: What critical information should a buyer prioritize when reviewing condominium association documents related to pending litigation?
- The names of all parties ever involved in historical disputes
- Whether the association is a plaintiff or defendant, the nature of the claim, and potential financial exposure (Correct answer)
- The total amount of attorney's fees paid by the association in prior years
- The total number of lawsuits settled out of court in the past decade
Correct answer: Whether the association is a plaintiff or defendant, the nature of the claim, and potential financial exposure
Understanding the association's litigation status and potential financial exposure helps buyers assess the risk of future special assessments or increased insurance premiums.
Question 7: What is an estoppel letter (or estoppel certificate) and why is it important in a condominium transaction?
- A letter certifying the unit has no hidden structural defects or code violations
- A document confirming the current status of dues owed, violations on record, and pending assessments against the unit (Correct answer)
- A lender's certificate verifying the buyer's creditworthiness for the purchase
- A document transferring the seller's voting rights and parking assignments to the buyer
Correct answer: A document confirming the current status of dues owed, violations on record, and pending assessments against the unit
An estoppel letter from the association confirms what the seller owes in dues, fees, or fines and discloses any pending assessments, protecting the buyer from assuming unknown debts at closing.
CCS Condominium Document Review & Due Diligence 2
Which of the following is a key element a buyer should examine in condominium meeting minutes during due diligence?