Are condo associations denying homeowners the ability to use FHA insured reverse mortgages on their homes? According the the LA Times, it’s happening.
One of its readers wrote about her difficulty getting a HECM loan because the condo board refuses to get the building approved for financing.
She wrote to owners that we are a condominium development, “which means the entire development would have to be approved in order for any individual unit owner to obtain an FHA loan…. We believe that because some people may get in because of the low interest rates (3%), and with little or no down payment required, we could be exposing ourselves to liability if these owners cannot make their mortgage payments and are ultimately foreclosed.
“At this time we believe it’s not in the association’s best interest to apply for the approval. We realize that this affects people who wish to obtain an FHA loan for either refinancing or obtaining a reverse-mortgage loan. We have to do what’s right for the majority of all homeowners.”
This isn’t the first time I’ve heard of this happening. About six months ago a retail loan officer told me about a borrower who lives in Chicago’s “Gold Coast” neightborhood. The 80 year old woman owned her condo free and clear, worth around $800,0000, but the board voted not to apply for FHA approval due to advice of counsel.
“They do not want to set up a reserve account,” the loan officer said. FHA guidelines requires that at least 10% of the association’s annual budget be set aside for reserves.
Have you run into this type of situation before? If so, let us know.