Condominium Document Review & Due Diligence Flashcards

What is the primary governing document of a condominium association that is recorded with the local government to legally establish the condominium?

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.

Which document in a condominium's governing package establishes the procedures for electing the board of directors and conducting association meetings?

Answer: Bylaws

Bylaws govern the internal operations of the association, including election procedures, meeting requirements, quorum rules, and board responsibilities.

What is the primary purpose of conducting a document review during condominium due diligence?

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.

Which of the following would typically be found in a condominium's Rules and Regulations but NOT in the Declaration?

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.

What is a 'resale package' or 'resale certificate' in a condominium transaction?

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.

During due diligence, why is it important to review the condominium association's most recent audited financial statements?

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.

What does it mean when a condominium project is 'FHA-approved'?

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.