A reader emailed me a few weeks ago with a very interesting story, but I was unable to take the time to write up a properly-researched post. Mish has picked up the slack, and has the scoop on the likely mass default of the entire 82-unit Riverwalk condo complex in Redmond.
It turns out the developer sold out the complex, dissolved his LLC, and is living somewhere in the Caribbean. Meanwhile, unit owners are in the hole by as much as 50% of their purchase price, not counting needed repairs of as much as $50,000 per unit.
There are major defects that require about $4.1 million in renovation work to address underlying ‘envelope’ issues that cause leaks and mold issues in 11 units. The consultants said the exterior on the entire complex had to be replaced.
The home owners association (HOA) discussed five alternatives.
- Sue the developer. Since the developer left the country so there’s no one to sue.
- Pay the $4.1 million maintenance with a loan. However, no bank will issue a loan because the HOA fund has a high delinquency rate and not everyone is paying their dues nor are they paying on time.
- Make each home owner pay approximately $45,000. Who would be willing to do that when everyone’s mortgage is seriously underwater?
- Liquidate the entire complex, forcing everyone into foreclosure.
- Opt for Band-Aid fixes. Go into each unit, rip it apart and fix the problem. However, the consultants have said that the damages will eventually spread to all units because the problem is structural. The HOA has gone this route in the past but the problems in 11 units keep coming back.
As of the last HOA meeting they’ve narrowed it down to option 4 and a new option… beg the local government for help. So they’re sending a letter to the Mayor of Redmond.
County records show the 5-building complex as having been built in 1981, but based on other information I was able to find, it looks like it was an apartment conversion completed in early 2007, and sold by a now-defunct LLC.
Mish’s advice is probably the least financially-devastating option for most of the owners at this complex:
Under the circumstances presented, it seems foolish to make another mortgage payment or another homeowner’s association payment.
If you own a unit in that complex, your best choice of action is to consider walking away.
Considering that most of the owners at Riverwalk bought right around the time when real estate around Seattle was hitting its price in mid-2007, it seems unlikely that any of them would be able or willing to spend $45,000 on repairs.
With the news of the impending teardown of the McGuire apartments in Downtown Seattle a few weeks ago and now this entire condo association likely heading into default, I have created a new tag—construction-gaffes—to help us keep track as more stories like this hit in the coming years.
The VP of the HOA wrote me to add some additional clarity to the subject. Here is his email.
My name is Bill Landon and I am the Vice President of the Riverwalk HOA in Redmond WA. On behalf of the Association’s Board of Directors, I would like to address the primary subject of [Mish’s] recent article “Redmond, WA Condo Association Votes to Mass Default.”
The headline [of Mish’s post] is incorrect, and the information is not entirely accurate. Neither the Board nor the homeowners have voted to “Mass Default.” There has been NO vote to terminate the condominium at this time.
The Board called an official membership meeting last month to discuss the current situation we find ourselves in due to the condition the developer has left the Association and our property.
During that meeting, we had our legal experts go over a whole host of options for the owners to consider in regards to our situation. We also had a report of findings from our architect that detailed a rough outline as to the condition and repair plan of our buildings.
Two weeks ago, there was a non-official meeting of a group of concerned homeowners who got together to brainstorm ideas for addressing our situation. As requested for that that meeting, I arranged for the Association’s architect to answer technical questions.
The Board’s take on both meetings is that owners want, and are coming to, a better understanding of the situation faced by the Association and themselves with respect to their investment. As a result, several homeowners have formed action committees to look into other “outside the box” options such as contacting the mayor, contacting their mortgage holder as a group, looking into government programs, etc.
The upshot is, this Association’s Board, along with its legal team, is still formulating a game plan and way forward. There will be additional meetings before we even consider voting on anything. Meanwhile, your blog readers should know that the headline [of Mish’s post] is flatly wrong. This community’s members have not voted to walk away from their Units or this Condominium.