[GA] [GA] Should I avoid purchasing a condo where the HOA has a pending lawsuit?

Lexi, Chatbot

I understand your concern. Has the HOA lawsuit been resolved or is it still ongoing?

Lexi, Chatbot

Are you aware of the details of the lawsuit and how it might affect the condo you’re considering buying?

Lexi, Chatbot

Is there anything else the real estate lawyer should know before I connect you? Rest assured they’ll be able to help with HOA lawsuit pending.

Brandon

Hi there and welcome to AskaLawyer. My name is Brandon and I'm an attorney. I’d be happy to help you out today. Please note that this discussion is for guidance only and does not constitute an Attorney-Client Relationship. My answers and comments should not be considered legal advice.

Please also note that I am human, that I often need to research your answer to give you an accurate response, that I work with other customers and get up from time to time. So please be patient while waiting for a response. If more than 30 minutes have passed, please feel free to reach out.

Brandon

What is the lawsuit? Where are you located?

Brandon

1. How Common Are HOA Lawsuits? It’s not unusual for condo associations to be involved in litigation. Sometimes lawsuits are relatively minor, like a dispute over unpaid dues, a slip-and-fall claim, or enforcement of community rules. Other times, they can be more serious—such as construction defects, major financial mismanagement, or conflicts with developers.

The impact depends on what the lawsuit is about. For example:

If it’s a small collections lawsuit against a past-due owner, that typically doesn’t affect lending.

If it involves structural defects, mold claims, or other costly repairs, lenders often see that as high-risk because it could require special assessments (large, unexpected charges billed to owners).

If it challenges the legality of the HOA’s operations, the entire association could be destabilized.

Before you decide whether to continue, it’s very important to get clear, written information about the nature and scope of this litigation. You are legally entitled to review the HOA’s disclosures.

2. Why Would a Bank Hesitate to Lend? Banks look closely at HOA lawsuits because litigation can:

• Lower property values.
• Make it harder to resell the unit.
• Result in major assessments if the association loses or settles for a large amount.
• Suggest that the HOA is poorly managed.

If the bank is “unsure,” that usually means they are waiting for additional documentation or clarity. They may require:

• A copy of the lawsuit complaint and any responsive pleadings.
• Evidence of insurance coverage for the claims.
• Proof of sufficient HOA reserves to cover potential settlements.

If the bank ultimately refuses to fund the loan due to litigation risk, you should be entitled to have your earnest money returned (provided your financing contingency is still in place).

3. Next Steps You Can Take Right Now? While you wait for the bank, you can be proactive to avoid surprises later:

• Ask Your Agent or Attorney for Full Disclosure. Request the HOA’s litigation packet, including:
  • The complaint or lawsuit summary.
  • Any communications to owners about assessments or risks.
  • Current reserve study and financial statements.
• Review the Condo Documents Carefully. Look for language about:
  • Special assessments.
  • Monthly dues increases.
  • Potential insurance shortfalls.
• Talk to the HOA Directly. If you feel comfortable, ask them:
  • What is the lawsuit about?
  • How long has it been pending?
  • What are the likely outcomes?
  • Will owners have to pay a special assessment if the HOA loses or settles?
• Get Written Confirmation from Your Lender. Ask Bank of America:
  • What specific documents or conditions must be satisfied?
  • When will they make a final decision?
  • What happens to your earnest money if they deny the loan?

4. Should You Walk Away or Keep Moving Forward? This decision is very personal and depends on your tolerance for risk. Some buyers are willing to proceed if the litigation is minor or fully insured. Others prefer to look elsewhere rather than face potential headaches.

If you back out without lender denial, you may forfeit your earnest money. But if the bank ultimately refuses to finance due to litigation, your financing contingency should protect you.

My Suggestion: Before you decide to terminate or proceed, I recommend you gather as much information as you can in writing so you are not guessing. Once you have the details, ask yourself:

• Would I be comfortable paying a special assessment if the lawsuit doesn’t go in the HOA’s favor?
• Am I prepared to potentially resell the property in a slower market if buyers shy away because of the litigation?
• Is this condo still the right fit if the dues go up significantly?

If you’ve exhausted these options and still feel uncertain, it may be best to consult a Georgia real estate attorney. They can look over the HOA documents and your contract and give you tailored advice about your risk and rights.

Brandon

You’re very welcome.