What Happens if a Condo Association goes Bankrupt?

Q: Mark,  my husband and I came across a great deal on a condominium in Northwest part of the District this past month at 1123 5th St NW.  In the remarks it clearly stated that there is no condominium association and its a cash only deal.  What does this mean to us as buyers and/or potential owners of the condominium when a developer can no longer continue to maintain the association?

Leslie B.

A: The principal negative effect of a developer going bankrupt after all the units are sold is that the Association and the unit owners who have warranties, as a practical matter, can only look to the letter of credit or bond which the developer posted to secure its warranty allegations and this could be inadequate for larger claims. Claims can be made in the developer’s bankruptcy, but the bankrupt estate of the developer may not be sufficient to cover all claims completely.

Mark G. Griffin Esq is a partner at a Washington, DC based firm Griffin & Murphy, LLP. Griffin & Murphy, LLP is a boutique law firm concentrating its practice in real estate law, civil litigation, development, condominium conversions, estate planning, probate, and business law. Attorneys in the firm practice in Washington, D.C., Maryland and Virginia. For more information visit WashLaw.com.

Readers may send questions to him at info@BuildingDC.com.