CCS Condominium Document Review & Due Diligence 1 — Questions and Answers
Question 1: What is the primary governing document of a condominium association that is recorded with the local government to legally establish the condominium?
- Articles of Incorporation
- Declaration of Condominium (Correct answer)
- Bylaws
- Rules and Regulations
Correct answer: Declaration of Condominium
The Declaration of Condominium (also called the Master Deed) is the foundational legal document recorded with the county or municipality that creates the condominium and defines ownership rights.
Question 2: Which document in a condominium's governing package establishes the procedures for electing the board of directors and conducting association meetings?
- Declaration of Condominium
- Site Plan
- Bylaws (Correct answer)
- Rules and Regulations
Correct answer: Bylaws
Bylaws govern the internal operations of the association, including election procedures, meeting requirements, quorum rules, and board responsibilities.
Question 3: What is the primary purpose of conducting a document review during condominium due diligence?
- To negotiate a lower purchase price
- To identify potential risks, obligations, and restrictions before purchase (Correct answer)
- To obtain mortgage pre-approval
- To transfer title to the buyer at closing
Correct answer: To identify potential risks, obligations, and restrictions before purchase
Document review during due diligence helps buyers identify financial, legal, or operational risks associated with the condominium before completing the purchase.
Question 4: Which of the following would typically be found in a condominium's Rules and Regulations but NOT in the Declaration?
- Unit boundary descriptions
- Pet weight limits and breed restrictions (Correct answer)
- Percentage of common element ownership per unit
- The association's legal name
Correct answer: Pet weight limits and breed restrictions
Rules and Regulations address day-to-day operational policies such as pet restrictions, parking, and noise, whereas the Declaration covers fundamental legal ownership structure.
Question 5: What is a 'resale package' or 'resale certificate' in a condominium transaction?
- A document showing the unit's complete sales history
- A seller disclosure about known structural defects
- A package of association documents and financial information provided to prospective buyers (Correct answer)
- A certificate of occupancy issued at the time of original sale
Correct answer: A package of association documents and financial information provided to prospective buyers
A resale package includes the association's governing documents, financial statements, meeting minutes, current budget, and other legally required information disclosed to buyers.
Question 6: During due diligence, why is it important to review the condominium association's most recent audited financial statements?
- To determine the unit's current market value
- To assess the association's financial stability and potential for future special assessments (Correct answer)
- To calculate the buyer's property tax liability
- To verify the seller's outstanding mortgage balance
Correct answer: To assess the association's financial stability and potential for future special assessments
Audited financial statements reveal the association's income, expenses, reserve fund levels, and overall financial health, all of which affect future assessments and property value.
Question 7: What does it mean when a condominium project is 'FHA-approved'?
- The building was constructed using federal housing funds
- The condominium meets HUD guidelines making units eligible for FHA-insured mortgages (Correct answer)
- The association has obtained federal tax-exempt status
- The project has been inspected and certified by federal safety inspectors
Correct answer: The condominium meets HUD guidelines making units eligible for FHA-insured mortgages
FHA approval means the condominium project meets HUD's requirements, allowing buyers to obtain FHA-insured loans and expanding the pool of eligible purchasers.
CCS Condominium Document Review & Due Diligence 1
What is the primary governing document of a condominium association that is recorded with the local government to legally establish the condominium?