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Selling Townhome with HOA in Litigation

Shakopee, MN |

We own a townhome in Shakopee, MN. We have moved and we are trying to sell our townhome. We found a buyer for the property in February 2008 and we were set to close on 3/31/2008. On 3/28/08 her lender decided to not fund the loan and they told us it was because the HOA was involved in a litigation. We have contacted the HOA and have not been able to get many details about the litigation. We were told that the HOA is taking action against the builder of a different section. Our buyer has contacted several lenders and has been rejected because of this litigation. One lender also found information that indicated there were 13 litigation issues with the HOA including one against the HOA and that is why they would not fund against the property. We have also found out that for some reason this property is classified as a Condo instead of a townhome and that is causing additional issues. I really have two questions. First I am wondering what owners should do if they cannot sell their property because of actions against their HOA? Secondly, we bought the property in May 2005 and I am wondering why these litigations did not surface? We have title insurance and I am wondering if we really had clear title when we purchased the property?

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Attorney answers 1


I answer with the disclaimer that I am a Massaxchusetts attorney, and that there may be particular provisions of local law rthat would change my responses.

The litigation may not have been pending in 2005 when you bought, and that could explain why it was not brought to your attention at that time. In any case, pending litigation is not, by itself, a so called "title issue" in that it does not directly affect ownership rights, even though, as a practical matter, it may effect market value, and the bad news is that it is not covered by your title insurance. The good news, and for the same reason that it is not a "title" issue, your buyers may not have had the right to back out of the deal even if their lender refused to go through with their loan. You should consult local counsel who can review your Purchase and Sale Agreement and determine whether you have any recourse against those buyers.

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