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Morgan Howen

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Condominium Ownership Is Complex. Here’s What To Know

There’s so much noise out there on how to navigate a challenging market. This April, let Inman help you cut through the clutter to make smart business decisions in real time. All month long, we’re taking it Back to Basics and finding out how real estate pros are evolving their systems and investing personally and professionally to drive growth.

This is part two of a two-part series. Check out Part One: Condos are confusing. This cheat sheet should clear things up

In 2016, my husband and I built a 2,220-square-foot semi-custom home, thinking it was in a platted subdivision with a 6,603-square-foot lot. Something was off, however. The sign on the lot had a unit number, but the street address made no reference to the unit number. I didn’t discover exactly what that meant until six years later. 

Complete and utter confusion

Most Realtors are totally ignorant about detached or site condominium ownership. So are most appraisers, attorneys, MLSs, mortgage professionals and local building departments as well. In fact, even FHA, Fannie and HUD have issues. The sheer number of widespread errors across the industry is staggering. 

Moreover, when I searched for real estate training on this topic, all I could find were a handful of online articles, many of which were filled with egregious errors. The most notable mistakes were advising that detached or site condominium ownership was like a platted subdivision ownership or lumping detached or site condominium ownership together with attached condominium ownership. 

Case study

Unfortunately, the developer of our subdivision failed to install adequate drainage in many parts of our community. Our property was one of the worst cases. 


After hounding the developer for three years and ultimately taking the issue to our local building department to get the developer to respond, the issues were still never completely addressed. Because the ponding was putting our foundation at risk, we decided to handle the repairs ourselves.

During the six months I spent working on correcting the drainage, our HOA advised us that all the residential structures in our subdivision were situated on a single lot (which was correct,) and hence, the HOA had to make any repairs (incorrect.) 

The attorney for our HOA then contradicted that advice by telling our Board that we owned our own lots (which was partially correct — we owned the surface area of the lot.) That meant I was responsible for repairing the drainage on my property (partially correct. The HOA was responsible for maintaining the drainage easements). 

In the midst of all this confusion, we also applied for a HELOC. 

What had we purchased? 

Looking for guidance, I read all 673 pages of our subdivision’s Condominium Declaration and found this:

At that point, I was more confused than ever. So was just about everyone else, especially the appraiser and the lender for our HELOC. Specifically: 

  • The lender gave us a single-family residence loan application, i.e., for a platted lot in a Planned Unit Development
  • The appraiser used the form for appraising single-family homes for platted lots in Planned Unit Developments instead of the forms for appraising condominiums. 
  • Both the lender and the appraiser missed several of the required condominium forms and disclosures. 
  • An additional source of misinformation was the Travis County property tax records that showed our “lot size” rather than stating the boundaries of the surface area of the land on which our Unit was located. This could result in the property being overvalued by appraisers and for property tax purposes. 
  • When the escrow received the preliminary title report showing that our property was a condominium, the lender contacted me and asked if that was correct. At that point, I knew it was a detached condominium and informed the loan officer about what that meant. We had to redo the entire loan application on the correct form. The appraiser also had to generate a new appraisal. 

It’s easy to see why all of this is so confusing, especially when I looked at my original loan documents and deed of trust from our purchase in 2016. 

  • Our note was on the “MULTISTATE FIXED RATE NOTE-Single Family-Fannie Mae/Freddie Mac Uniform Instrument Form 3200 1/01.”
  • Our Deed of Trust used the: “TEXAS-Single Family—Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3044 1/01.” 
  • There was also a two-page CONDOMINIUM RIDER recorded on form 3140. 

Part of the confusion for lenders is also due to the Fannie Mae guidelines that state:

Site condos in which the unit owner owns the detached condo unit and the land upon which the unit is built are a type of detached condo. The waiver of project review applies for new and established projects. 

HUD Rule 4000.1 which also applies to FHA, states:

A Site Condominium refers to a project of Single Family, totally detached dwellings encumbered by a declaration of condominium covenants or a condominium form of ownership. They have no shared garages or any other attached buildings. Project approval is required for Site Condominiums that do not meet this definition.

Both definitions fail to address how the land is held, i.e., as surface rights as opposed to owning a lot in a platted subdivision and/or Planned Unit Development. 

Fortunately, everything fell into place when one of the attorneys on our Board figured out that what we owned was a detached/site condominium. We were able to do the repairs to our drainage and our loan funded as a condominium with the required documentation. 

Detached or site condominiums: A minefield laden with disclosure errors 

Over and beyond the industry’s overall ignorance about detached or site condominiums, the other major source of disclosure errors rests with the MLSs and the portals. Virtually all MLSs require Realtors to indicate whether a property is a single-family residence or a condominium. To the best of my knowledge, this choice is always binary. There is no way to select both “condominium” and “single-family residence.” 

The second major issue is the “lot size” field on the MLS listing input forms. In my case, I don’t own a lot, but I do own the surface area of land on which my Unit is located plus all the structures and systems that serve my Unit exclusively. How do I disclose that on the MLS? Do I fill it out with a notation in the MLS description or leave it blank? If I do put lot size with an asterisk, how do I describe “surface ownership?” There are absolutely no MLS guidelines or rules to help me. 

An even bigger issue is how do Realtors advise their sellers to make this disclosure on the state-mandated disclosure documents? Does my brokerage or Realtor association need to draft a separate detached or site condominium addendum? Who needs to take the lead? Clearly, leaving this up to agents to address would be a massive mistake. 

When it comes to search, detached or site condominium owners are in a lose-lose situation 

Since the portals pull their data from the MLS, they’re stuck with the same binary choice the Realtors face in terms of displaying detached or site condominium listings. For example, on Realtor.com the choices are “single family” and “condo.” On Zillow, the choices are “houses” and “condos.”

Where this situation can be particularly damaging to owners of detached or site condominiums is due to how consumers search. Very few buyers searching for a single-family home will also search for condominiums. 

To illustrate the cost to detached or site condominium owners, one of my neighbors has a beautiful home that was priced right. When the Realtor learned the home had to be classified as a condo on the MLS rather than single family, the agent changed the listing to condominium. Showings dropped and the highly motivated sellers ended up taking the property off the market. 

Furthermore, appraisers typically rely on MLS data for establishing details about the property and for locating comparable sales. How can they choose the appropriate comparable sales when the detached/site condominium is lumped together with traditional condos where the owners have no surface rights to the land? 

Lost buyers

I recently had a buyer stop me while I was out walking and ask, “Where is Unit 42?” When I asked for a street name, she said that was the only address her Realtor gave her. While Unit 42 is the correct legal address, none of our 100 detached condominium units have a unit number on our properties — we only have street addresses. 

While Realtors must use the unit number for appraisal, lender, MLS and title purposes, they still need to include the street address to guide buyers to the right location. 

What to do next? Single-family condos? 

What steps can the industry take to address these issues as rapidly as possible? Based on my experience, both Realtors and consumers have a difficult time wrapping their heads around what a detached/site condo actually is. 

A term that would be easier to understand (although you would still have to use your state’s definition of what the type of ownership is) would be “single-family condominium.” This term captures the duality of this style of ownership. In terms of implementing this change: 

  • The fastest way to eliminate much of the confusion regarding detached or site condominiums would be to allow these properties to appear in both the single-family and condominium search fields on the MLS and the portals. The new MLS category could be “single-family condominium, (i.e., detached or site condominium based upon state real estate laws.) 
  • Agents marketing or showing detached or site condominiums could also use the term “single family condominium” (i.e., detached or site condominium) to describe the dual benefits of “surface ownership of the land” coupled with the consumer protections of condominium ownership — the best of both worlds. Clearly, having an exterior picture of the property is crucial. 
  • MLSs must also give Realtors a second option when it comes to lot size. This second option would reference the “unit boundaries of the land.” In other words, it would describe the “surface rights” to which the buyer would have title as part of the purchase of their unit.
  • State real estate commissions and departments must incorporate training on detached or site condominiums in all real estate licensing courses. 
  • Experienced Realtors, appraisers and mortgage professionals also need training and guidelines about how to explain this style of ownership plus how to make accurate buyer and seller-mandated disclosures. 
  • To minimize their risk, brokers should compile a list of all detached or site condominium subdivisions in the areas they serve. These properties should be flagged so that the brokerage can make sure that they are accurately described on the MLS and in any marketing materials. Brokers must also take steps to make sure their agents are fully trained about how to make accurate representations and disclosures to consumers. 
  • Associations and brokerages should consult with their legal counsel as well as with an experienced legal expert on detached/site condominium ownership in their state. Ideally, their counsel will draft language Realtors can use to make the correct disclosures to their clients. They may also want to draft a separate disclosure to be used in all detached/condominium transactions including listing and buyer packages that describes this style of ownership. 

The bottom line

Detached or site condominium ownership is a complex issue that requires immediate attention from the real estate industry. Failure to address the confusion and lack of training in this area puts both practitioners and their clients at risk. It’s time for the industry to make the needed changes now to mitigate these risks and provide better guidance and accurate disclosures for everyone involved.

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