Understanding Condo Conversions

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Before understanding what a condo conversion is, you must understand from a legal perspective what a condominium is. A condominium allows an owner to divide a piece of property and sell separate buildings or portions of buildings such as individual units in a three family home. Simply stated, a condo conversion is the legal process of dividing among several parties the property rights of some type of larger structure originally owed by a single person or entity.

Selling & Buying Condominium Units

For a property seller, the condominium conversion represents a way to legally separate and sell units one or more at a time. For a home buyer, the process represents a less costly way to enter the home ownership market since a condominium unit is typically much more affordable than a multifamily building. For a mortgage lender, the condo unit represents more stable home buying power. The conversion of a three-family home to condominium status results in three separate home buyers with separate earning power borrowing lower amounts of money (thus reducing lender risk). Financing one buyer to purchase the entire building would be much more expensive and difficult in today's mortgage climate.

The Master Deed

The Condominium Master Deed is the document that after being recorded at the Registry of Deeds creates the condominium (along with the floor and site plans) and specifies what the common areas and boundaries are for each unit. It also specifies the rights and obligations of the unit owners, including the exclusive right to use areas for each unit (such as balconies, storage areas, and parking spaces). The Master Deed allows the "declarant," who is the person creating the condominium, to separate the property rights into multiple pieces.

The Declaration of Trust

The Condominium Declaration of Trust, which includes the By Laws, creates the Condominium Association which will govern the day-to-day operations of the condo. The Declaration of Trust also specifies the way in which common expenses (commonly referred to as the condo fees) will be collected and paid. These common expenses, generally, include the condominium master insurance premium, common water and sewer bill, and general maintenance for common areas, such as landscaping, and snow removal.

Master Insurance Policy

All condo associations must have a master insurance policy covering common areas and certain installed portions of each unit. The Master Policy does not protect the unit owners' belongings. The policy typically will be a “studs out policy” and the unit owner will need to purchase supplemental coverage to cover such things as floors, walls, appliances, and cabinets. In other words, anything from the studs out toward the exterior of the building is considered part of the condominium and covered by the Master Policy, and everything from the "studs in" is part of the unit and the responsibility of the unit owner. To ensure that mortgage lenders will accept the master insurance, the policy must include public liability coverage of at least $1,000,000. You can get more details about these policies by contacting your insurance agent. 

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