Many developers and real estate investors seeking to maximize lot space are interested in taking a single family lot and converting them into two (or more) unit condominium buildings. This allows one single family property to be changed into two units that can now be sold to separate buyers.
In order to change the single legal lot into multiple units that may be sold, the owner must either subdivide the lot or convert the lot into a condominium regime. Conversion of the lot to condominiums can often take less time, be less costly for a developer and have fewer regulatory agency requirements so condominium conversion has become a pretty popular option in our area.
The Texas Uniform Condominium Act (“TUCA”) is the law that governs Texas condominium regimes and all documents filed must be in strict compliance with the TUCA requirements. While a real estate agent is not expected to be the expert on this topic it is important to know that there are lengthy and detailed requirements of TUCA so that you can emphasize to your client the importance of seeking legal counsel.
It is also important for a real estate agent to understand the process that is involved with conversion as mistakes in the process will result in delayed closings. To get started, your client must have the documents drafted to create the condominiums regime. This is often referred to as the Declaration of Condominium. This document legally converts the lot to condominium units to be sold separately. TUCA is pretty specific on what has to be included in these documents so it is very important for a client to have an attorney draft these.
Incorrectly handling the condominium conversion process can result in delayed closings. Lately, we have seen several situations where a closing has had to be postponed. Examples of the issues that can cause delays are:
- Incorrect or incomplete condominium documents (i.e. drafting defects that do not satisfy TUCA requirements);
- Documents missing lienholder consent (any lienholder on the property must sign for their consent to change the property);
- Documents fail to adequately describe the units to be created;
- Documents not filed timely (there is a gap of time between recording the documents and being able to close);
- Clients trying to record documents the day before closing (in most cases there is a 7-10 business day gap needed, assuming the documents are perfect and do not require any edits).
When you have a client that wants to convert a property into condominium units you should work closely with your Texas National Title escrow team. There are many complex tasks on which we can help guide the parties (i.e. tax prorations, partial releases of liens, etc.) to get to a successful closing. Please have your client send the documents to their escrow officer and the escrow officer will share the documents with our examination team. Our examination team will review and confirm that the documents have what is needed to create an insurable condominium regime. Please have them do this well before closing so that the target closing date can be met.
Our Texas National Title closing teams are well versed in the art of condominium conversion and have in-house legal counsel that is happy to help answer questions on this topic as well.