Hi dpj,
When an HOA is involved in a lawsuit there is always uncertainty as to the outome. Banks do not like uncertainty, therefore they will typically not issue mortgages under these circumstances. Furhtermore, the most common reson for HOA litigation is alleged construction defects - something that banks like even less than the uncertainty of pending litigation.
This typically presents an excellent opportunity for cash investores. Obviously, there are no restrictions on how someone can spend their own money, and values of units located within an HOA with pending litigation tend to go down (becuase they are difficult to sell). A cash investor may be able to get a very good price for such a unit, particularly if it has been foreclosed. Eventually, the lawsuit will be settled and when that happens, values are likely to increase.
Until the litigation is settled, though, it will be virtually impossible to obtain financing for a condo or townhome located within the HOA in question, even with a significant the down payment.
