Realtors: Would it be conflict of interest for Condo Assn. Pres. & Co-Owner to Agent other's condo for sale?

The Condo Assn. President is also a co-owner, residing in one of the condos under the Association rules. She is a realtor with a license and was contracted by one of the other co-owners to sell their unit as they have already moved out of state and wanted to work with someone they knew who would be motivated as a co-owner to get it sold and at a good price.

By itself, I'm not sure that is a conflict of interest. HOWEVER, this Condo Association President called a special meeting of the other Co-Owners (mostly retired folks who are easily led) and convinced a majority of them to give up their right of first refusal to purchase the unit she was selling as the real estate agent. The buyers wanted FHA financing and we were given some story about how that right of first refusal could be held as discriminatory and we could be sued. I disagree.

To the extent this Pres. is asking us to give up our rights so she can make commission, I think that would be a conflict of interest. Agree?

The right of first refusal is the right of the existing Condo Assn. Co-Owners to purchase any unit at the price that another buyer has initially agreed with the seller to pay. The thought is that this will help prevent any of the Co-Owners from selling their unit at some incredible discount (e.g. "fire sale price") which could have the effect of driving down the market value of all the other units. This is a common right that is afforded in other condominium agreements and serves to protect the existing owners.

In this scenario, however, the buyers are of low credit quality needing FHA support to gain financing, so all the other owners are incurring risk by letting these buyers in. We have maintenance fees in addition to what these new buyers will have to pay for financing what will likely be a 97% mortgage, so the concern is whether they will become house rich and money poor and drag the rest of us down when they can't pay for repairs.

I am a Realtor and an attorney with experience in professional ethics. A professional conflict of interests can be cured by full disclosure and waiver of the conflict by the parties concerned. Is this woman a Realtor, or merely a licensed real estate agent? Realtors are members of a professional organization and are required to adhere to a code of ethics that does not apply to all licensees. You can see that code at the link provided below. I suggest that you read it over and see if there is some specific provision that she might have violated. It might help you frame your issues in more specific language. Your question does not so much involve this woman's role as a Realtor, but rather her fiduciary duty to the members as president of the HOA. Violations of conflicts of interests rules often involve a failure to disclose. It sounds like she disclosed her personal financial interest as an agent in the transaction so there is no obvious problem there. It would require further investigation to determine if she deliberately and knowingly misled the HOA in the decision making process. Your charge would then be that she failed in her fiduciary responsibility to the members and the board of the HOA. I don't know of any code of ethics for HOA officers, but provisions of the Civil Code, Corporations Code, Business & Professions Code or similar statues would impose legal duties on such officers. Your anlaysis has to be rigorous as someone's prefessional and community reputation is at stake. A mere conflict is not a violation, but it is the first in a list of questions that must be answered including whether there was a waiver, and whether that waiver was voluntary because the protected party was fully informed.

I've never heard of a right of refusal of a buyer of a property. That does sound like discrimination and a lawsuit waiting to happen. You can sell your property to whom ever you choose, so long as they are able to purchase it. If someone offered the seller asking price for the condo and the seller refused to sell it, the seller would be dizzy at how fast they get sued. If the agent has a VESTED interest, whether it be a family members place that they are selling, or they own part or all of the unit, they would have to disclose that. Otherwise there is no conflict of interest that I see.

I disagree that this is a conflict of interest, as the Realtor will make a commission whether you buy it or someone else buys it.

Now, she may be protecting the condo association. Stick with me here. If currently there are over 50% of the units in the property with the owners living in them (owner-occupied), your property qualifies for FHA financing. It's called a "Warrantable" complex, and government backed financing is applicable there. When the property falls below 50% owner occupied, the property becomes "Non-Warrantable" and thus much harder to obtain financing for. This, in turn lowers the value of each of the units.

If one of you co-owners was to purchase the condo, it becomes an investment unit (non-owner occupied) and lowers the percentage of owner-occupied units. This may or may not make the entire complex Non-Warrantable.

The other point to this is as follows: depending on your Association rules there, if the Realtor has a buyer for the unit, she probably has to have each of you release your first right of refusal before title can transfer and the sale can conclude.

Feel free to contact a mortgage provider if you have further questions about warrantable and non-warrantable condos.

I'm not sure about the 'conflict of interest' concern; but asking the owners to forfeit their 'right of first refusal' has its pros and cons.

In a bid for not relinquishing that right, owners have the opportunity to increase their land holdings. On the other hand, if something 'tricky' is in the makes on the HOA's side, it can be sued.

The link below outlines just what can occur. It really is up to each HOA to decide what will be more beneficial to its communities.

I think your "conflict of interest" argument is a great stretch. I also believe that your argument against FHA borrower's buying in is a false argument. How does it protect you from a buyer who has access to any number of loans available with credit scores down to 500 as well as a buyer with 25% down payment and a Hard Money loan that doesn't even consider the credit of the buyer.

Your assumption that FHA is for low grade credit worthy individuals is false. Many people with 700 credit scores may chose an FHA because of the low down payment requirement and/or low interest rates. FHA will allow a non-occupant co-borrower, Conventional loan will not. There are a myriad of reasons a high quality credit worthy person might choose or need an FHA loan.

It has already been pointed out that an owner occupied unit is far better for the 'protection' of the whole in terms of the owner-occupied ratios lenders look at when evaluating 'property eligibility' for a loan.

The agent, when citing possible discrimination suits, may be referring to the Federal Fair Housing Act and/or any State Fair Housing Act.

While it appears your organization has not stepped over the line yet, it does look like you are on the fence ready to fall over. Depending on the rest of the story, a good attorney could argue that while in fact you are not practicing discriminating on the surface, you are engaged in De Facto discrimination. The argument would go something like: since it can be proven that minorities do, on average, have lower credit scores, you are discriminating against them with your rules.

One more thing for you to consider here. Do some research and compare: How many FHA lenders vs. Non FHA lenders have recently gone out of business due to bankruptcy, and how many of the recent foreclosures were on what type of loan. I haven't done the research myself, but my money is on... there is no comparison; conventional far exceed the FHA.