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As a condo association, your board has worked hard to maintain a certain standard. That could include the caliber of homeowner. In fact, in a few cases, condo associations have stepped in just as a condo owner is about to close the sale and exercise what’s known as “first right of refusal.” That is, the board will instead offer to buy the property instead of the buyer who has already lined up to purchase the condo. While the practice is much less used in a condo association setup, those people trying to sell through a cooperative association have one very large roadblock to overcome.

 Yet some condo associations are finding the first right of refusal arrangement, that which allows the condo association board the opportunity to either buy or refuse to buy any unit up for sale, a godsend in a mighty tough market. One condo association in Chicago has developed a plan to become its building’s landlord, offering to buy up vacant units under the first right of refusal clause, rent them out, and resell them after the market conditions improve.

 Another reason condo associations are resurrecting what was once considered a discriminatory practice – to ensure the new owners can afford the condo unit. With more foreclosures in the market than at any time in recent history, condo associations are eager to curb the loss of association fees and residents by hand selecting the next wave of residents.

 A number of states have prohibited the first right of refusal action. New Jersey passed the New Jersey Condominium Act, which expressly prohibits the practice. Still, many condo associations do have this provision in their bylaws, though it isn’t often exercised due to the risk of discrimination claims.

 Should your condo association use first right of refusal to ride out a tough economy? Talk with your insurance broker. Understand what your state’s laws are, and determine if the benefits of purchasing units and becoming a landlord outweighs the risks. It’s a drastic change from the original function of a condo association, but if foreclosures are plaguing your property, it may be a viable alternative.

Flickr photo credit: allaboutgeorge