“Novice buyers often fall in love with the decorative staging or the lakefront view of a for-sale unit,” said Sara E. Benson, a Chicago real estate broker and appraiser with more than 30 years of experience.

“However, you need more high-tech inside information than typically available on a Multiple Listing Service printout,” advised Benson, CEO of Association Evaluation LLC, a Chicago-based real estate data-analysis firm. (www.AssociationEvaluation.com)

Working as an exclusive buyer’s broker for decades, Benson always did the behind-the-scenes condo-investigation homework for clients. On every deal, Benson dug into the condo documents—budgets, board minutes, history on special assessments, status of reserve funds, and common-area conditions before she let a buyer blindly sign a sales contract.

Why? Because more than half of the 337,000 community associations in the U.S. are facing “serious financial problems,” reported the Community Associations Institute. And, 72 percent of association-governed communities were underfunded in 2013, according to Association Reserves, a California-based company that helps associations with budget and operational issues.

In 2012, Benson utilized her real estate appraisal background to develop a unique algorithm analyzing more than 140 data-points regarding the internal workings of community associations. Using the data, she commissioned a team of computer scientists and programmers to create a new, patent-pending scoring system—the “Private Association Rating”—or PARScore®, a revolutionary new high-tech, data-driven analytics process.

So, how does a condo shopper obtain the often hard to get financial information? The simplest way is just ask for it, and make the deal contingent on getting the information.

“You should insist that your Realtor or real estate attorney attach a special “Condominium Association Inspection Contingency Rider” to the contract to make completion of the deal contingent on receiving important documents and often hidden financial information.

The rider requests the following information: Declaration or Covenants, Conditions and Restrictions (CC&Rs), association rules and fine schedules, current and prior year’s operating budgets, most recent 12 months of board minutes and audits.

The rider also requests most recent reserve study and reserve study review, current reserve and operating account balances statement, lawsuit disclosure statement, owner-occupancy disclosure statement, life safety completion statement, and most recent 24 months of special assessment history disclosure.

The Contingency Rider also requires the seller to pay any expenses related to gathering the documents and providing them to the buyer.

The Contingency Rider also includes a new benefit—a Buyer’s Inspection Notice—which calls for visual examination of the property’s commonly owned elements, such as recreation facilities, swimming pool, fitness center, parking, elevators and common roof deck. The prospective buyer pays for the visual inspection as part of the PARScore® fee.

While surfing the web, a Chicago-area condo shopper found Association Evaluation through a Google search.

The buyer, who plans to move from north suburban Gurnee and hopes to buy a condo in southwest suburban Oak Lawn, downloaded the free “Buyer Kit,” the Condominium Association Contingency Rider, and the HOA Contingency Rider using the following links:

• Buyer Kit: https://associationevaluation.com/buyerkit/

• Condo Rider: https://associationevaluation.com/wp-content/uploads/2014/06/AE-Condo-Inspection-Rider.pdf

• HOA Rider: https://associationevaluation.com/wp-content/uploads/2014/06/AE-HOA-Inspection-Rider.pdf

The buyer also asked Association Evaluation to complete a PARScore® evaluation on the Oak Lawn condominium he plans to buy. He already has received the association’s declaration, bylaws and insurance certificate. “Financial information and other documents listed on the Association Evaluation website have been requested,” he said.

“Today, potential buyers of condos or homes in HOAs have access to digital tools that de-clutter murky data in favor of transparent information that actually empowers the consumer in advance of their purchase,” said Benson.

The Association Evaluation team already has captured more than 50,000 Chicago-area and Illinois condo associations and HOAs in their database, and has completed hundreds of PARScore® reports from Bethesda, MD to Palm Springs, CA.

Through the proprietary algorithm, PARScore® provides a standardized rating between 400 and 900. Every association is assigned a unique Permanent Identification Code (PIC). More than 140 data sets are analyzed and scored against the coded individual associations by using the patent-pending PARScore® point system.

Depending on the number of units in the condo building, the cost of a PARScore® typically ranges from $300 to $850.

Collected data includes direct investigations with association directors and property managers, as well as on-site inspections of the communities. Additional data sources include monitoring corporate filings such as lawsuits, judgments and bankruptcies.

Financial reporting includes verification of operating and reserve-account monies. Board minutes are examined for adherence to standard accepted business protocol procedures and to ensure against unexpected and costly special assessments that have been discussed by the association’s directors, but not yet levied at the time of sale.

A check for date of last reserve study and date of last financial audit also serves to greatly reduce risk. News, Internet and media sources are consistently monitored for each association.

For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.

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Last week, we discussed how to react when you discover HOA fraud. This week, we discuss when it’s time for legal advice. The short answer is, never! Going to court against your homeowners association is equivalent to suing yourself. Amazingly, the aggrieved homeowner is simultaneously paying for both the prosecution and the defense at the same time. It’s a no-win situation. The association always has the upper hand in terms of cost. They have the money –

Occasionally, an owner will “win” a lawsuit, but at what cost? He or she often spends all of his or her savings and many times bankrupts not only him – or herself, but his or her association as well. Lawsuits can take years – many years. And then there’s the crapshoot of trying to collect damages.

Suspecting board fiscal misconduct, Gary Palm, a Chicago attorney, University of Chicago professor emeritus of law, unit owner, and prior board member of the 2800 Lake Shore Drive Condominium Association, fought a recalcitrant board for 13 years to get access to financial records he rightfully was entitled to view within three business days under city and state statutes. Legal fees were in the hundred of thousands of dollars. Experts speculated that because of Palm’s advanced age, the association was waiting for him to expire and give up the good fight. The association appealed. Out of money and running out of time, Palm could no longer afford to hire an attorney and self-represented before the Illinois Supreme Court. In April 2013, the Supreme Court ruled in his favor.¹

Like it or not, attorneys serve an absolutely critical function in community associations – and some of them are superb at problem solving and facilitating agreement. Often a well-worded demand on an attorney’s letterhead is more powerful than all other options.

When the time comes to hire, always choose an attorney skilled not only in real estate, but specifically in your state’s condominium and HOA statutes. Avoid attorneys standing in the “breadline” – those who take on assignments without specific areas of knowledge. The practice and interpretation of condo and homeowner association law is a specialty. Just like surgeons, attorneys have specialties. You wouldn’t want a heart surgeon performing your brain surgery. Likewise, you wouldn’t want an attorney who specializes in traffic law represent you in community living disputes. Interview your attorney and do not be afraid to ask questions. (One Supreme Court justice once said that in his opinion, less than 20 percent of the attorneys in the United States were qualified to practice law.)

An experienced attorney will respect you for asking questions and is always pleased to dwell on his own accomplishments. Further, you want to make certain the relationship is a mutually good fit from the very beginning. Some of the questions to ask in the initial interview include:

“Does your company represent individual owners”

“Do you have any conflicts of interest in representing me?”

“Are you experienced in litigation?”

“Specifically, are you experienced in community association law?”

Honest answers to these questions will help you make the right choice in retaining a lawyer. Sometimes it is urgent to hire an attorney. If fraud has been discovered and the perpetrator(s) might be a flight risk, it may be necessary to get an immediate court order to freeze the association’s assets. Far too often embezzlers are caught fleeing the country with dyed hair and their passports and thousands of dollars in cash in hand.

¹ Palm v. 2800 N. Lake Shore Drive Corporation, Illinois Supreme Court decision, April 2013.

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