How hard is it to get a condo loan in Chicago these days?
In some buildings, it’s impossible, as they appear on mortgage lenders “blackballed list” which means they won’t lend in the building.
Real estate agents and lenders say they are seeing more developers, condo associations and individual owners in economic distress, and, as a result, so are buildings.
“Anybody who can’t hang on anymore, that stuff is starting to come out,” said Eric Rojas, a Prudential Rubloff agent in Chicago. “We have people who want to buy units and sellers who want to sell units, and it’s not going to happen.”
Added Gail Lissner, a vice president at Appraisal Research Counselors: “Someone told me it’s called mortgage jail because you just can’t get out. That’s a scary problem.”
Among the deal killers: too many renters in a building, pending litigation, inadequate association reserves and delinquent assessments.
The health of the building is adding another layer onto an already complex relationship between a condo owner and the other owners in the building.
The situation is slowing any recovery of the condo market, often the housing of choice for first-time buyers. Owners in troubled buildings aren’t able to refinance, and sellers who want or need to sell find thin ranks of buyers. Last year, 42.5 percent of all initial foreclosure filings in the six-county Chicago area were against condos.
Two weeks ago, Mario Donini was ready to trade his Buffalo Grove apartment for a two-bedroom, two-bath unit, with a parking space, in Chicago’s Lincoln Square area, a unit he couldn’t afford when it was first listed last spring. When it came back on the market recently, with a $60,000 price reduction, Donini jumped.
“It was exactly what I was looking for in a place,” he said.
Then he and Rojas, his agent, started asking questions and found that three of the seven units, or 43 percent of the building, are non-owner-occupied rentals.
Donini decided to pass on the condo.
“I wasn’t comfortable moving into a building that’s becoming a rental building,” he said. “This is somewhere I want to live for a few years. I’m just worried if this stays as a rental building, it makes it hard for me to get out of there and make back some money or even break even on my investment.”
Now, Donini is back in the market but asking about a building’s health before he’ll agree to see it.
What happens if you buy in a building that appears healthy now but that later becomes a “zombie building”?
Are condos simply too risky to buy now?
To see a list of blackballed buildings from December 2010, see Gary Lucido’s blog post about it here.
That list is now several months old so I’m sure it has changed somewhat. Check with your lender or get a good agent.
Condo deals die in shadows of financially distressed buildings [Chicago Tribune, Mary Ellen Podmolik, February 28, 2011]
