I’m thinking of buying a residential condo unit in a newly developed project. What should I be concerned about?

A: First and foremost you should decide whether the project will be able to function after you become an owner. Minnesota law requires developers selling residential condominium units to provide prospective buyers with a disclosure statement that includes important information about how the condominium and the condominium association function, the financial strength of the association, and your rights and obligations as an owner. Copies of the condominium’s governing documents, the condominium association’s budget and balance sheet, and information regarding warranties, and many other matters will be a part of the disclosure statement. You should, of course, review the entire disclosure statement, but here are some things to pay particularly close attention to:

• How many units are there and how many have been sold? If too few units have been sold there is a risk that the project will fail and there may be insufficient funds available for the condominium association to pay for insurance, utilities, and other charges for which it is responsible. Please note that in some condominiums, the developer has the right to add additional buildings and land to the condominium. A developer is required to disclose this right in the disclosure statement.

• Has the condominium actually been legally formed? A surprising number of projects have had units sold and closed before the condominium exists in a legal sense. This is a risk buyers should not take. A title insurance endorsement known as a condominium endorsement is available to insure a buyer over losses that may occur as a result of the condominium not having been properly created. There often is an existing mortgage on the overall project that financed development of the condominium. You should make sure that the lender has consented to the creation of the condominium. If this has not occurred, the foreclosure of the developer’s mortgage could affect the existence of the condominium. This concern also can be addressed through appropriate title insurance coverage. You should also make sure that your unit is released from any prior mortgage.

• Does the condominium association have sufficient funds available to carry out its responsibilities? Reviewing the association’s budget and balance sheet will be helpful in making this determination.

• Is there a risk of mechanic’s liens? In Minnesota, people who provide labor, material or equipment have 120 days after their last contribution to file a mechanic’s lien. You should determine whether construction has recently occurred, and be sure to obtain appropriate title insurance coverage against mechanic’s liens relating to work performed on the project prior to recording of the deed to your unit.

• Will the condominium be owner occupied, or is leasing permitted? You should review the covenants contained in the governing documents of the condominium as well as the rules and regulations to determine whether there are any restrictions on leasing, and whether the nature of those provisions are acceptable to you.

• You should look closely at the nature of the arrangements for parking, storage, etc., and make sure that you fully understand what you’re getting, and whether there are any circumstances under which a parking space or storage locker would be forfeited or whether there are special charges that you’d be expected to pay.

• You should determine whether there are any special charges that you would be expected to pay at closing or afterwards in connection with the unit you are purchasing. Generally, each unit owner is expected to pay a share of the common expenses of the condominium association. You should determine what those charges are, and under what circumstances those charges can be increased. There may be other charges that you will be expected to pay. All of those charges should be described in the disclosure statement.

• Finally, you should make sure that the governing documents and rules permit you to use your condominium unit in the manner you intend. For example, if you intend to modify your unit, the time to determine whether the modification is permitted is before you have completed your purchase.

Minnesota law generally permits the purchaser of a condominium unit to cancel the purchase within 10 days after receiving the disclosure statement, but there are exceptions. Your right to cancel will be described in the disclosure statement. You should therefore act promptly once you receive a disclosure statement.

Answer provided by Larry Berg of Fredrickson & Byron