Lender withholds buyer financing, citing inadequate reserve account
Q. We listed our condominium for sale, and signed a contract with a buyer who made a full-price offer. To our dismay, we learned the buyer's lender would not provide financing, claiming that the association does not have enough funds in its reserve account. The buyer terminated the contract based on the mortgage contingency. Any thoughts?
A. I'm not sure how a lender would easily know if an association has adequate reserves. However, there are secondary mortgage market guidelines that require the annual budget for a condominium to include a line item in the budget with a minimum percentage of the budget allocated to the reserve contribution.
The association's budget, typically requested by proposed unit mortgage lenders, would reveal whether this requirement is satisfied or not by the association. That may be the case here; as opposed to the actual amount of money that is in the reserve fund. It may be useful to get some more details as to the reason why the loan was rejected, and share the information with the board.
Q. A story in the Feb. 4 Daily Herald reported on a Lake County town's proposal to permit people to keep chickens in backyard coops. The story also discussed the ability of homeowners associations to prohibit the keeping of chickens. I live in a homeowners association in the town in question, and I have a chicken coop as my family enjoys fresh eggs. Can the association really prohibit me from keeping chickens if the town permits them?
A. An association's governing documents can be stricter than what is permitted by a town's ordinance. A covenant that prohibits the keeping of fowl or poultry is fairly common in a homeowners association. So you may want to see if that prohibition now exists.
However, an association's declaration that permits the keeping of fowl or poultry could be amended to prohibit the keeping of chickens. The amendment procedure set forth in the declaration would have to be followed in order to properly amend the declaration; such an amendment would typically require approval by some percentage of the owners in the association.
There may even be circumstances under which the association could adopt the restriction by way of rule voted on and approved by the board, without unit owner approval. The board should consult with an attorney familiar with association law to determine how the restriction in question would have to be implemented.
Q. Elections in our association have been contentious, and outcomes have been questioned, and there have been accusations of intentional miscounts of the votes. Is it advisable to implement some sort of a rule to address recounts?
A. Every association should adopt a procedure for recounts of the results of an election. The procedure should set forth the time within which a demand for a recount must be made, how it is made, and the assessment of the cost of the recount (for example, unless the recount resulted in a change in an election outcome, not merely votes, the cost would be borne by the person demanding the recount). The procedure should allow the candidates themselves or a designated representative to observe, but not participate, in the recount.
If an owner suspects there is an issue with an election beyond just the accurate tabulation of the votes, such as, for example, forged proxies, the owner could certainly file a suit in an attempt to set aside the election results and to seek a new election.
As an aside, it may be useful for the board to consider hiring an independent accounting firm to collect ballots, tabulate the vote and report on the results at the annual meeting.
• David M. Bendoff is an attorney with Kovitz Shifrin Nesbit in the Chicago suburbs. Send questions for the column to him at CondoTalk@ksnlaw.com. The firm provides legal service to condominium, townhouse, homeowner associations and housing cooperatives. This column is not a substitute for consultation with legal counsel.