By: Stephanie Diana Wilson- Gast
A question that comes up to me often regarding structural defects cases is if the HOA has investigated structural defects and they are in the early stages of litigation but they aren’t officially in litigation. Does this still count as a litigation review required?
For those not familiar with this theory Schrodinger’s Cat is a thought experiment where a scientist in my opinion was committing serious bouts of animal cruelty. He put a cat in a box with a vial of poison and we don’t know if it opened or not. So, thus until one investigates the box the cat is both alive and dead. Though the concept and experiment is deplorable to me and if I go further into why it bugs me I will just sound like the anti- Sheldon Cooper.
Per usual my CYOB please contact your underwriter and real estate professional for case by case comparisons of your condo that you are investing in as each file differs.
Now that legality is out of the way as a general example this Schrodinger’s Litigation this counts as litigation though the HOA hasn’t officially sued. And yet it doesn’t still count as litigation. But, most condo review specialists like myself are not attorneys. So, it is not our jurisdiction to determine if the project’s litigation is dead or not in this generality.
However, in this scenario the file has bigger issues that should be dealt with before it ever becomes a condo department issue. Such as the underwriter will need to verify the structural defects are repaired and thus the property meets collateral requirements. Fannie Mae and Freddie Mac both deem that litigations where there is an issue of habitability or safety structurally is not acceptable. But, none the less that’s a question for the underwriter to ask well before it gets to a Condo Review Specialist’s desk.
However, on the condo side of it there are some details regarding litigation files as a whole that need to be documented. Such as again if the structural defect has been repaired and the HOA is just trying to get their money back from the developer for the repairs they had to make. Which is logical cause if there is structural defect even in the common areas that is just more law suits sitting around waiting for a time and place to happen. No HOA wants that risk. Also since most of those litigations are monetary in nature FNMA requires proof the insurance is covering the costs of the defense and if the HOA loses, and how much is sought after and that the amount is covered by the insurance policy. Also the appraisal needs to comment if the litigation will affect the marketability of the project.
Again reach out to your underwriter or real estate professional as guideline update and change and each case is different from the last one. And no one wants to be left hanging with a Schrodinger’s Litigation. Both a do able deal and not do able deal.
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