There is a lot of new construction going on in the metro area. The new gleaming high rises are typically starting out as condominiums. When buying a condo from a sponsor in a new construction project, there are many things to watch out for. One small blip can be the Right of First Refusal.

This means the condo association may elect to buy a seller’s unit for the same terms as was offered to an outside buyer. Therefore, the condo retains the unit for resale or rent and the seller receives the exact consideration for the unit as before. This is done when the Condo Association believes the unit is being sold too cheaply or they want to resell/rent it to an “insider”. A condo board [typically] must elect to exercise this option within 5 to 10 days after being notified of an impending sale, have a majority vote of owners and close within a short period of time.

Here is the blip as it pertains to your financing: A foreclosing lender must be exempt from the Right of First Refusal. In event of foreclosure, the lender must know that they can foreclose and sell the unit without a holdup from the association. Normally, this right does not apply for sales by the sponsor, transfer by lender due to foreclosure or sale to a family member/trust.

The reason why I bring this up today is that I am working on a new construction condo loan in the City. The final approval is being held up until I provide proof that a lender will be exempt for this exercise in the event of foreclosure. I am waiting for the management office to provide the proper documentation. Upon receipt of this, the lender wills rubber stamp my loan “clear to close”.

So as a heads up to the buyer and professional working on a deal like this add this onto your doc checklist. Typically the info is found in the bylaws or prospectus. (I returned this book to the borrower two days ago.) Making a copy and keeping it in the file will save you a day of waiting ….as I am.