Condominium ... or Townhome? Which is it?

This age old question recently reared itself, had me scratching my head, and doing some major homework and clean-up for a couple of weeks. First, let me give you some background on an unusual circumstance ...

My Borrower had transacted for a property listed as a Condominium. Only thing, after a couple weeks into the deal, we uncover that it's legally described as a Townhouse Style unit within a PUD (Planned Unit Development). There are 4 Units attached in a row with a row-house design; meaning side-by-side Units.

The exterior of the building's maintenance is provided by the Homeowners Association through its Reserve Funds. Monthly Dues are consistent with a Condominium Project. Assessments and Property Tax Identification Number (PIN) are consistent with a Condominium Unit. The local Assessor and the Appraiser considered it a CONDO.

Remember, if it walks like a duck ... and quacks like a duck ....

This property looks like a Condominium, walks like a Condominium, and quacks like a Condominium. But after receiving file documentation (the Certificate of Insurance and Title Commitment from the Seller's Attorney, and lastly the Declarations of the Association from the Management Company), I discovered red flags. Legally ... it was a P.U.D. (Planned Unit Development/Townhouse)!

Having been an Appraiser for well over 20 years, I knew what to look for and where to look for the support info and details needed to clear up the confusion. I knew how to argue my case so we could move forward with the mortgage processing for this property. It took days of pleading my case, but the Appraiser finally came to recognize that this property is a P.U.D. ... and not a Condominium, as represented.

What ARE the differences between a P.U.D. and a Condominium? The terms themselves refer to the legally designated form of ownership.

* In a Condominium, the land is NOT owned by the Unit owner, but rather is shared with all the Unit owners in the Association. The same is true of any "common" land areas.

* In a P.U.D., the land underneath the Townhouse Unit is legally owned by the individual Unit owner. In the case mentioned above, the developer set-up this particular subdivision as a Planned Unit Development, even though it takes on the typical and usual attributes of a Condominium.

Through the combined efforts of myself, my assistant, my processor, and a few others we confirmed the property's land use. Then we also convinced others that there was in reality a problem regarding this property. One that was causing me, as the Mortgage Lender, real difficulties when trying to secure loan approval and a Closing.

After gathering all the needed documentation and evidence together, it was easy to see why there had been confusion. It took the following documents in order to straighten this problem out:

* Appraisal: Initially, the appraisal was performed as though the property was a Condominium. It was confirmed as such by the Appraiser.

* Title Report: The Legal Description described this property as a P.U.D. (Planned Unit Development).

* Tax Bill/Assessment: Both referenced the property as a Condominium.

* Certificate of Insurance: This document stated NO Building Coverage provided with Association's Policy. That is consistent with a P.U.D. project where each unit is insured separately.

* Property Declarations & By-Laws: This document finally reached us about two weeks into the deal. Its legal description matched the Title Policy's, confirming that this project had indeed been set-up as a Planned Unit Development.

* Survey: This document was also provided after a request from my office. It shows lot dimensions for each Unit.

* County Plat Map: The plat map shows this property like a Condominium.

The outcome? The duck was wearing a disguise and walking funny! This property IS a P.U.D. and I will close the loan accordingly. The incorrect documents are being revised as a result and will be revised in time to assure a successful Closing.

The points proven to me by this property's saga? A FULL Legal Description and/or the Legal Declarations & By-Laws on any multi-unit project is definitely needed when working on these types of transactions. I'll also stress the point that it definitely pays to work with an experienced Mortgage Lender. One that knows the details of all phases of the real estate transaction and mortgage lending process.

And finally, looks can be deceiving. You can't always judge a book by it's cover. If it Walks like a Duck ... and Quacks like a Duck ... it isn't always a Duck!