Prefer to talk in person? Find a mortgage specialist on Zillow
Profile picture for thing2750

Does appraisal mentions litigation?

Hello,

I am considering a condo in which the association has litigation against the builder for construction defects. I can get a lender that will approve the loan regardless of the litigation at a higher rate and closing fees, but I can gamble with a different lender with better rates and cheaper closing fees but only if the appraisal comes out 'clean' (without references to the litigation).

I am trying to weight my chances so does anyone know  how often appraisals in this scenario will have references to the litigation? 

Thank you!
  • March 13 2014 - San Jose
  • 0
    0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

Answers (10)

Profile picture for daveskow
thanks for the update ...keep us posted and good luck !
  • March 28 2014
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for thing2750
Thank you for all the valuable replies.
The construction defect litigation is not major, the usual stuff: deal with some roof leaking issues. The attorney fees will only be considered if the association succeeds, and it seems to be moving that way as the builder is properly insured and is cooperating to an agreement.
 
My loan broker had these two options on the table: a lender specialized in these situations (coast2coast) and a different lender that had better terms with the sole condition that the appraisal had no references to the litigation whatsoever.

It just doesn't sound right to bet on a loan that requires such important information to be somehow concealed - even if there are no major defects or structural damages to the property.

In any case the community is well known in the area and I am sure that every appraiser already knows about the litigation.

Thank you again.
  • March 28 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Just because a condo is in litigation does not automatically mean it cannot be financed.  It really comes down to what type of litigation the association is in and what the worst case outcome could be.  How expensive will repairing the construction defects be? 

I know if I were buying in a complex with construction defects I would like to know how much the repairs would be, if the association doesn;t win the litigation the association and the owners have to splt the costs of the repairs.

  • March 13 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Good question. I just took a look at a recent appraisal and the appraiser mentioned that there was no litigation. I agree with everyone else that most lenders will ask for the HOA documents. Interestingly enough, I am closing a transaction right now where the lender did not ask for HOA documents and there was no mention at all in the appraisal regarding litigation. There is a question in the appraisal, however, that asks if there are any special or unusual characteristics about the project and the appraiser checked "No". I would speak with the lender first.
  • March 13 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

The more likely source is going to be the HOA disclosures that any lender is going to require. The appraiser will simply come out and view the property and write up a report on its market value. 

Hope this helps,
Robert
  • March 13 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

I agree that almost certain that lender will require an HOA cert that includes a very specific question about being in litigation: YES or NO.  If you second lender will not lend on NO answer, then not worth spending ~$500 for a appraisal by them.

On the other hand, many lenders will not reject on just simply the YES/NO answer. They send the information to their Condo department to review the nature and status of the litigation. So they may/may not refuse to loan on the property.

The risk you take is the ~$500 appraisal fee and not being able to close escrow on time. Might be manageable risk. Another thought is if there are multiple offers, then the seller is likely to pick the buyer with the lowest risk of cancelling due to the litigation.
  • March 13 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for daveskow
its very unlikely you will be able to  get lender to  miss the  litigation  issue ….many more places this would appear than just appraisal 
  • March 13 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Actually if the Automated Underwriting engine results come back with a waiver, an HOA cert is not required. However it's still likely that the appraisal will mention the litigation, as it's often in the public domain and appraisers usually have knowledge of what's going on in their territory. Often an appraiser may have worked in that association. So it's a question of cost and time if you want to roll the dice.

  • March 13 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Profile picture for Marshall Stewart
I am not sure you are getting the right information. The appraisal can or cannot mention litigation but most lenders if not all require an HOA cert from the property management. One of the questions specifically asks if the HOA is in litigation. The question then becomes what type of litigation it is and can it affect property value. There are lenders who bypass this requirement at a higher rate and fee as it looks like you have found but they are usually not a traditional lender and usually require 20% or more down. I would ask the lender you are considering how they approve condo associations and if they require a condo cert to be processed.
  • March 13 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

The Condo Budget will likely reflect is anyways (even if the appraiser is kept in the dark). someone is paying for the attorney to litigate this and my guess is the HOA is paying for it... (so its going to be reflected someplace). It will likely be "settled" before any trial and its in everyone's best interest if they try to settle sooner than later.

The attorney certainly does not mind dragging it on forever, The HOA likely does not realize whatever they may win in a suit is surly chomped into by decreasing their own property values in the end, depending on the builder and the severity of the damages (at the end of the day... he might simply file bankruptcy to vacate any severe judgement anyways).... just a few thoughts to the wise...
  • March 13 2014
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.