When foreigners purchase property, often condominiums, in the United States, they are generally focused primarily on the cost of the property, the location and potential appreciation in value as an investment. The United States has traditionally been a good place to invest savings from their own less stable countries. For these reasons, they often do not pay as much attention as they should to the technicalities and formalities associated with the purchase, since they usually rent out the units.
While it is standard practice for a New York closing attorney to review the offering plan, bylaws and minutes of a condominium before closing, they do not necessarily retain legal counsel for this. The problem is made worse if they are purchasing it all in cash. Some people might think, “What could be bad about paying all cash?” However, having a bank involved is an extra layer of protection. Banks want to ensure that the deal is well-secured, so they also do their due diligence to review the necessary papers.
New York condominiums want to make sure that they can find unit owners in the event of a default. After the closing, that is easier said than done. Where do you serve the unit owner? That is one reason that condominiums require unit owners to sign papers before or at the closing stating who can be served with process for them in New York and which courts have jurisdiction. It is amazing how, even in this Internet world, people can “disappear.”
For example, one out-of-state unit owner in a condominium defaulted on common charges and assessments. When the building manager tried to contact the person, all of the information they had was stale. He had changed his cell number. He was no longer living in the location where the building had him listed. The building also did not have his work address. The tenants in the unit would not share any information about the owner’s whereabouts. We had to retain a detective to locate him. Imagine how the level of difficulty multiplies when you add the extra element of it being an international owner.
These are the same kinds of issues and concerns that arise when a unit is purchased by a trust or a limited liability company or is purchased by an individual who wants to change ownership to a living trust. How will the payment of common charges and assessments going be guaranteed? This example is a cautionary tale for condominium buildings that do not have policies in place to secure this information before the walls go up, shutting the building out.
Even though there are no financial requirements in a condominium when unit owners have purchased units in their individual names, then want to change ownership into a living trust, it is no longer owned by the high-net-worth individual who provided financial information before the closing.
Insurance is another weak spot for many foreign investors. They often do not purchase general liability insurance. Instead, they ask their tenants to purchase insurance, which may or may not be done. Perhaps the insurance does not cover the hazard. Renters insurance is not meant to cover the same liabilities as the kind of policy that a unit owner might purchase.
I am frequently consulted for advice by people wanting to make such purchases and the related issues.