Why, an experienced real estate lawyer asked, are Chicago condominium buildings turning away buyers for units that banks have foreclosed on?
The lawyer cited a condo complex with hundreds of units in Edgewater, where the board turned down a young woman who was ready to close Thursday on a foreclosed unit for $63,000. Instead, the building manager said, the board decided to exercise its right of first refusal and purchase the unit itself, as it had already done with two other units in the past 18 months.
The reason, the building manager told the lawyer, was the board was afraid such a low sales price would reduce the value of all the other units in the complex.
The unit in question would have gone for between $100,000 and $140,000 before the market crash, the lawyer said.
It sounded like a deal gone sour for the young buyer, who had good credentials and had already jumped through numerous hoops just to get as far as a scheduled closing.
But former Illinois state Rep. Ellis Levin, who wrote much of the state's condo legislation, said the story is far from over.
Before the condo board can exercise its right of first refusal, the decision must be approved by owners of existing units. The number needed for passage varies depending on the condo's declaration, which spells out the rules, but it's usually two-thirds. And it's two-thirds of all owners, not just two-thirds of those who vote. That's a hard number to reach, said Levin, who now is running for Cook County Judge in the Eighth Subcircuit against six opponents.
Rights of first refusal in condo declarations mostly date back to the 1960s, when condos first began appearing in Illinois, or the 1970s, when most were built or converted, Levin said. They dropped out of favor when owners found the declarations made it harder to resell units, and newer condos generally don't have them.
One of the legitimate purposes of a condo association is to try to maintain property values, so a condo board has the right to invoke its right of first refusal, he said.
But at a time when it is very hard to sell units, condo boards tend to be happy to find qualified buyers at any price.
Follow BackTalk on Twitter@stbacktalk.