Information about banks’ obligations when selling new construction condos

Fannie Mae has predicted that new home sales will rise 26 percent in 2010 compared to an estimated 19 percent drop in sales in 2009.  And many of these buyers have realized that new construction bank owned homes allow them to purchase the latest features in brand new homes, but still get a great deal.

But there has been some confusion surrounding such homes, regarding the bank seller’s obligations according to the Georgia Condominium Act.

That’s why I was so impressed with Seth Weissman’s recent newsletter article about the topic.  Having practiced law for more than 30 years, Seth, partner at Weissman, Nowack, Curry & Wilco, certainly understands the complexities of the Georgia Condominium Act.  Below is his full article.

SELLING BANK-OWNED NEW CONDOMINIUM UNITS

Many brand new, never previously sold bank-owned condominium units are now

on the market for sale. A question which is increasingly being asked about such units is

whether the bank seller must comply with the consumer protection requirements of the

Georgia Condominium Act in selling these units. The answer, as explained below, is an

unequivocal yes!

Georgia law requires that consumers be given certain special protections in

buying condominium units that apply “to the first bona fide sale of each residential

condominium unit for residential occupancy by the buyer, any member of the buyer’s

family, or any employee of the buyer.”1 The consumer protections apply to “any such

sale regardless of whether the seller is the declarant, the association, or any other

person.”2 Therefore, the requirements apply to bank-owned condominium units that

have not been previously sold. The protections generally fall into three categories.

First, the sales contract is required to contain certain disclosures in bold-face

type warning buyers of issues to consider before purchasing the unit. Therefore, a GAR

condominium unit sales agreement cannot be used because it does not contain these

disclosures. More importantly, there is a standard set of disclosures that can be

attached to all contracts to bring them into compliance with the law. The nature of the

disclosures made will change depending on the type of condominium unit being sold.

So, for example, the disclosures in a unit that is part of a condominium conversion are

different from the disclosures for a newly-constructed condominium unit.

Second, buyer must be given a bound copy of a condominium disclosure

package and sign an acknowledgment that they have received the same. For two

reasons, banks should not simply use the condominium disclosure package prepared by

the original developer or “declarant.” The Georgia Condominium Act requires that the

disclosure package be current. The foreclosure will often result in a new declarant and

this must be reflected in the disclosure packet. The passage of time will normally result

in the condominium association’s budget being out of date. Additionally, if the bank

merely hands out the original disclosure package, it runs the risk of being legally liable

for any misstatements, or out of date statements, of the original declarant. Therefore, at

a minimum, the bank should carefully review the condominium disclosure package which

is being used to be certain it is current, accurate and complete.

Third, buyers who are purchasing previously unsold condominium units for

residential occupancy must also be given a seven-day right to rescind or back out of

their condominium sales contracts. The seven-day period does not begin to run until the

buyer has signed a contract and acknowledged in writing the receipt of the condominium

sales contract. The Georgia Condominium Act is silent on whether a buyer who was not

given a current condominium disclosure package can rescind after they have closed on

the purchase of their unit. However, the likelihood is that they can.

It should be emphasized that this section of the Georgia Condominium Act is one

of the few which provides that the “willful violation of any of the requirements of this

Code section by the declarant, the seller, any sales agent or broker, or any other person

shall constitute a misdemeanor.” Since there is a risk of criminal prosecution for failing

to comply with the law, this is definitely an area where an ounce of prevention is worth a

pound of cure.