Mr. M came to my office asking for advice about whether or not he should sell his condo now or later. It is always a good time to sell if you need to sell; however, I believe his concerns were more than real estate related. He lives in a condominium complex where the homeowner association was borrowing against the HOA (Homeowner Association) funds which are collected monthly from the associated condo members. Could the HOA action affect the value of his condo, he asked. If the HOA action is questionable, i.e. illegal, shows poor management, or jeopardizes quality of life, yes it can affect the desirability and the value of the condominium. Any material facts or concerns that may affect the value of the condominium are required disclosures and they can often turn away potential buyers. But to not disclose these material facts is fraud.
With increasing scrutiny from lending underwriting guidelines, condominiums have become the forefront casualty of tightening guidelines because of its higher level of risk for the mortgage investors. Condo ownership has associated dilemma and problems that can become cancerous. A few bad rotten apples can spoil the entire lot. Fannie Mae has new guideline requirements such as no more than 15% of the condo HOA dues can become delinquent more than 30 days in new condo projects and homeowner association must have at least 10% of its budget placed in reserves for repairs and insurance deductibles. However, each condo projects are assessed on a case-by-case basis.
When purchasing condominiums homebuyers should be conscientious and be informed of possible liens, defects, special assessments, history of assessments, pending litigations, delinquent dues, percentage of homeownership versus rental units, quality of management and maintenance, board meeting minutes for the past two years, HOA meeting minutes for the past two years, the insurability of the condo complex, and whether or not a reserve study was done.
Having a reserve study has not been a common practice but because of poor management of condo finances, it is a practice that has become highly recommended. Although the practice of having a reserve study is strongly encouraged there is no enforcement power except when a lending underwriting guideline may require monetary reserves set aside for a rainy day and for insurance. So, if the condominium don't meet those guideline requirements, the buyer cannot obtain a loan from that lending institution for that particular condo complex. However, as lending institutions differ from each other their underwriting guidelines may also differ. It is best to do some research to find loans that best fit your needs and know well the condominium you plan to buy into.
With increasing scrutiny from lending underwriting guidelines, condominiums have become the forefront casualty of tightening guidelines because of its higher level of risk for the mortgage investors. Condo ownership has associated dilemma and problems that can become cancerous. A few bad rotten apples can spoil the entire lot. Fannie Mae has new guideline requirements such as no more than 15% of the condo HOA dues can become delinquent more than 30 days in new condo projects and homeowner association must have at least 10% of its budget placed in reserves for repairs and insurance deductibles. However, each condo projects are assessed on a case-by-case basis.
When purchasing condominiums homebuyers should be conscientious and be informed of possible liens, defects, special assessments, history of assessments, pending litigations, delinquent dues, percentage of homeownership versus rental units, quality of management and maintenance, board meeting minutes for the past two years, HOA meeting minutes for the past two years, the insurability of the condo complex, and whether or not a reserve study was done.
Having a reserve study has not been a common practice but because of poor management of condo finances, it is a practice that has become highly recommended. Although the practice of having a reserve study is strongly encouraged there is no enforcement power except when a lending underwriting guideline may require monetary reserves set aside for a rainy day and for insurance. So, if the condominium don't meet those guideline requirements, the buyer cannot obtain a loan from that lending institution for that particular condo complex. However, as lending institutions differ from each other their underwriting guidelines may also differ. It is best to do some research to find loans that best fit your needs and know well the condominium you plan to buy into.
Keep in mind that townhomes are considered condos in the State of Washington; and to be safe, double check lending requirements in all complexes that have HOA dues to determine whether or not they are subjected to any new lending requirements.
No comments:
Post a Comment