Condo buyers: How to protect yourself (© Tim Boyle/Getty Images)

Depending on your expectations, your financial picture and your location, the current condo-market woes could make for good bargain hunting. Just forget any fantasies of a quick profit. It could be years before prices rise again.

But if you're crazy about a place and you expect to stay put for some time, shop away. Just keep the following tips in mind so you don't mistake a money pit for the deal of the century:

Make a down payment. Don't opt for 100% financing (even if you can still find a lender who will approve it). If your home value drops and you need to sell, you'll be required to come up with extra cash to cover the difference between the selling price and your mortgage, plus an agent's commission and any other fees.

Look for hidden debts. If you're buying a distressed property, whether in a "short sale" (when the seller owes the bank more than the house is worth) or a foreclosure, find out if you'll inherit liens or debts attached to the property — unpaid homeowners association fees, for example, says Brandon Bickel, a San Francisco Bay Area attorney specializing in condo association law.

Read:  Delinquent condo dues pressure fellow owners

Brace for scrutiny from the homeowners association. Some Florida associations hard-hit by foreclosures are demanding that new buyers make a down payment and demonstrate a minimum level of income.

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Look for trouble. Get the homeowners association board's minutes for the last two or three years — the more information the better. Also get any audited financial statements, if available. (State laws govern whether this is required. For example, Nevada requires homeowners associations with more than $150,000 in annual revenue to be audited annually.) Look at the "assessments receivable" to see how much it is still owed in homeowner fees each year. If that amount increases from year to year, the association is having trouble collecting dues, says Tim Cleary, Associated Management's chief financial officer.

Read. Get a copy of the association’s bylaws or CC&Rs (covenants, conditions and restrictions). Even if it's big as a city phone book, take the time to understand them. Get a lawyer to interpret what you don't understand.

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Meet the managers. Although property managers can't discuss individual homeowners' finances, they can discuss association business. A reluctance to share could cue you to a bad situation. Ask:

  • What is budgeted, if anything, for bad debt? Look for 2% to 10%, depending on the property.
  • How many units are in foreclosure or are overdue on homeowners association fees? 10% to 15% is a bad sign.
  • How many units are bank-owned? Some associations are forced to take banks to court to get them to pay their delinquent fees.
  • How many are rentals? Speculators are more prone to foreclosure, experts say.
    How much is in the association's reserve account? View account records to see if it has been tapped to cover operational costs. Has a reserve study been done? A lot of states require them. Read it to learn the condition of the property and how much should be set aside. If no study has been done, ask why not.
  • How many special assessments, if any, have been levied over the years and what has the money been used for? Special assessments may indicate a lack of good planning by the board and managers.

Give new developments fierce scrutiny. The lowest prices right now are in brand-new communities still owned by desperate developers stuck with lots of unsold units. You might score a screaming deal. Or you might get stuck holding the bag for the unsold units' fees when the developer goes bankrupt. Your safest bet is an older association with a good financial track record.

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Build in wiggle room. Don't get leveraged to the limits of your income, even if a lender lets you. Be prepared for special assessments and condo fees that could double, triple or rise even more. Here's how bad it can get: In Florida, some counties are demanding special assessments to bring neglected older developments up to code.  "All of a sudden you may get a letter in the mail that says that within three weeks you need to come up with $18,000," says Bill Raphan, the state's condo ombudsman. In many cases, those same condo associations already were struggling to pay special assessments to fix damage from the disastrous hurricane seasons of 2004 and 2005.