WMBF INVESTIGATES: HOA lawsuit complicates condo sales

Updated: Jul. 25, 2019 at 7:04 PM EDT
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NORTH MYRTLE BEACH, SC (WMBF) - For three decades, North Myrtle Beach vacationers have enjoyed the pristine location and community at Tilghman Beach and Racquet Club.

The 12 buildings of condominiums sit a block off the ocean and two blocks from Main Street.

While the location is ideal for a beach vacation, it doesn’t pair well with wooden buildings.

After more than 30 years, the ocean has taken its toll on the units and now owners are facing the consequences.

A lawsuit filed by seven homeowners in 2016 claims the buildings have suffered damages from the ocean environment and have deficient conditions that have gone unaddressed.

The condo owners filed the lawsuit against the Tilghman Beach and Racquet Association and its current board members, claiming gross negligence.

The suit states that since the creation of the complex, the homeowners’ association board has failed to establish a financial reserve to pay for the inspection, maintenance and repairs of the complex.

The suit says numerous things - from balconies to railings to roofs - need to be replaced and some violate city building codes.

One couple who wished to remain anonymous said they have owned a unit for eight years and it was just in the last few years that the condition of the buildings was brought up.

“I think all of us as homeowners were blindsided by this lawsuit. We didn't even see it coming,” she said. “I am grateful for the safety issues, that none of us realized how dangerous it really was and we are all blessed that there haven’t been any deaths that occur because of poor maintenance on the structure.”

She said since they bought the condo, the HOA dues have almost doubled.

“We are having to pay what the people who owed it in previous 25 years didn’t pay,” said her husband.

Despite the increases in dues, the lawsuit claims the association and board failed to assess the co-owners adequately to fund reserves to fix damages and predict a lot more money is needed.

Various reports from engineering consultants that were collected by the plaintiffs estimate it would cost between $28 million to $35 million to bring all the buildings back up to standards. A bill that size would mean each unit would be responsible for at least $131,000.

“This means that in the very near future that project will either cease functioning or that a special assessment of $131,455 per unit will be necessary to ensure the continuation of Tilghman Beach and Racquet Club as a functioning resort condominium. Without these basic repairs, there is the likelihood of injury associated with guests or owners’ use of balconies, stairwells and other deficient building items,” said Henry Beckham, a real estate appraiser, in a letter to the Bellamy Law Firm, which is representing the seven homeowners.

Beckham predicts this additional $131,000 cost to owners would significantly decrease the value of units, even if it is split between sellers and future buyers.

“Based on this scenario, the subject units would require a discount of their sales price in the amount of 50 percent of the pending special assessment or approximately $65,727 per unit,” Beckham stated in the court document.

While that additional cost could be placed on future owners, current owners are already bearing the financial costs of the lawsuit.

“We as homeowners have to keep paying the bills and it keeps going on,” the condo owner explained.

The two owners said they don’t understand the need for the lawsuit. They also can’t not pay the necessary dues without risking a lien on their property.

“I think there might have been a more effective way to work this out with common goals for everybody,” the owner said.

According to court documents, the plaintiffs tried to resolve their differences with the defendants, but “because of the varied, different and inconsistent interpretations argued by the parties concerning the proper administration, maintenance and repair of the regime property,” a resolution could not be reached.

WMBF reached out to the current HOA board members, but only one replied and referred questions to their attorney.

The plantiffs and their attorney also declined to comment on the case.

The condo owners said they’ve paid at least $18,000 in extra HOA dues to cover the lawsuit and for structural work on the buildings.

Often association’s insurance companies pay for legal fees, but in this case the insurance carrier denied coverage. It’s an action that has sparked additional legal action from the HOA claiming the company has a duty to defend them.

The HOA’s attorney, Charles Jordan, said a judge ruled the company does have a duty to pay for the lawsuit, but the insurance company filed an appeal in that case.

Jordan said everything is on hold until the appeal is heard, and he doesn’t anticipate any action until next August. In the meantime, he said both sides are continuing work to resolve things.

As owners continue to wait and wonder, they face immediate consequences associated with the pending lawsuit.

“We would very much like to sell our property," the owner said. “We are under contract with another contract and we can’t close until we sell this place.”

She and her husband bought the condo in 2009 for $170,000. During the last eight years, they said they’ve invested $30,000 in upgrades to the unit.

Despite the location and upgrades, their unit sat on the market for a year.

The couple believes their condo would easily sell had it not been for the pending lawsuit.

“What scares them is the lawsuit and the unknown of what that might mean for them as a homeowner down the road,” the owner explained.

Blake Sloan, a certified real estate expert with the Sloan Realty Group, said he sees the effect of HOA lawsuits all the time.

“I think finding condos with litigation against them as a buyer is a very scary thing for multiple reasons,” Sloan said. “One, obviously the risk of an assessment later down the road but really the biggest thing that we see is the financing.”

Sloan explained the top buyers of mortgages, Fannie Mae and Freddie Mac, won’t buy the loan.

“The biggest challenge we see is if it has litigation on it, you can’t get conventional financing, which in many cases eliminates 80% of the buyers and so it leaves that 20% of cash buyers,” Sloan said.

He explained even then cash buyers are hesitant due to future issues they might run into when they are ready to sell.

In addition to reducing the pool of buyers, Sloan said lawsuits also decrease the market value of units.

“We’ve tracked a few buildings and we’ve seen it drop price 5 to 10% over a period of time because what happens is it becomes more difficult to sell,” Sloan explained.

According to Zillow, many of the recent condo sales in the complex have sold for decreased value and their estimates have decreased in the last 30 days.

Sloan does admit while selling a unit attached with a lawsuit is challenging, it is not impossible.

He said sometimes buyers familiar with the complex and situation are willing to overlook the legal issues. He added that sometimes a small local bank will offer an in-house mortgage, but often only if the HOA has good financial reserves and nothing is structurally or environmentally wrong with the unit.

The condo owners at Tilghman Beach and Racquet Club were able to eventually sell their unit but said they took a $65,000 loss.

“Sometimes taking a loss is better than an unknown regarding future expenses,” she said.

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