Know Before You Buy: A Guide to Multi-Unit Developments
Townhomes, Condominiums and Planned Unit Developments were at one time very popular among first-time buyers. That’s a thing of the past. The issue with multi-unit developments is not with the development itself, but with current financing regulations. During the Real Estate down-turn, FHA financing tightened on these properties to almost the strangle point, though financing on a Townhome is slightly less hassle than a Condo.
On the other hand, multi-developments have become an investor’s dream. Selling prices are inhibited by the lack of financing options so cash has become king in the condo world. And a current prices, they are indeed a good investment. Rental costs are rising at an unprecidented rate, condos and townhomes are in demand for renters.
If you’re considering a purchase in a multi-unit development you should be aware of what you’re buying in each case.
Planned Unit Developments, Condominiums, and Townhouses are similar dwellings on the surface, but each has different coverages in a title insurance policy. Knowing the differences is important if you are buying or currently own one of these properties. Here is a brief explanation to help you.
A Condominium is a form of ownership which involves a separation of property into individually-owned elements and common elements. Each owner holds the fee simple interest to his or her individual unit – which consists only of the airspace – and also shares in a percentage of the fee for the common areas, which may include patios, storage, parking, decks and other use areas.
The legal description in the owners’ title policy will have several parcels that include the unit, the common area, and any easements. Owner and lender title policies will have exceptions for the governing documents (CC&Rs) and the Condominium plans. Liens affecting the association and/or common areas can affect unit owners.
A Planned Unit Development (also known as a PUD), also known has a, allows the grouping of housing units on lots smaller than usually allowed for residential construction. Within the PUD, a land owner will own a lot inclusive of the structure and improvements and will also benefit from an association that provides common areas and amenities. Automatic membership in and mandatory assessment to the association is required for the property to qualify as a PUD. A PUD can have multiple types of dwellings: single-family detached residences, townhouses, multi-family buildings, commercial, and even industrial properties.
The legal description in the owners’ title policy will show the lot as created by the map, and there will be exceptions shown for the governing documents of the association (CC&Rs). Liens affecting the association and/or common areas do not attach to the individual land owners due to the separate ownership of the common areas by the associations.
A Townhouse is a dwelling unit, generally having two or more floors, which is attached to other similar units via party walls. Townhouses are often used in PUDs and Condominium developments, which provide for clustered or attached housing and common open space. A Townhome is merely an architectural design; it has no bearing on the title policy other than it may indicate that there are party wall agreements that may be recorded or be a part of the governing documents.
As far as title insurance is concerned, both PUD’s and Condominiums have unique items that lenders must address with specific endorsements. The owner of a PUD will have ownership of the land and structures, while a Condominium owner will have ownership of the airspace and a percentage of the land and structures. The owners’ title policy will have governing documents shown as exceptions and these documents should be read by any prospective buyer so they fully understand what they are getting into. There are advantages and disadvantages to both ownerships, and any questions regarding the type of ownership should be directed to the title company for clarification.
Reprinted with permission from RISMedia. ©2016. All rights reserved.
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