Condo Boards Blocking FHA Reverse Mortgages?

NewImageAre 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.

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“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.

Board president can’t block condo owner from applying for financing

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  • We recently had the management company refuse to provide a copy of the SIGNED management agreement because they were in trouble with the board and did not want their competition to be able to gain any competitive advantage in their bidding war. The board had changed many times and none of the current board members or past board members had any copies of it.

  • Yes, I’ve had HOA officers refuse to cooperate for two reasons: 1) their position was voluntary and their aim was to do the least amount of work necessary; and 2) they had made poor decisions/errors (particularly with their reserve accounts) and did not want this to be documented.

    I have also run into situations where the builders developed the property as a condo to take advantage of some lower licensing costs, but then walked away without ever setting up a HOA at all, and after letting the purchasers think they were buying one half of a twin home/duplex.

  • I had a client who really wanted to stay in her home of 20 years, but needed the extra money the reverse mortgage would give her to pay her condo dues. The HOA was not willing to put up the 10% reserves, and this was in a “tony” neighborhood. Well, a senior who lost her portfolio (my client) was out of luck. She cried.

  • It will depend on the laws of the State governing the creation of a Condominium. It may be the case that some States do not adequately police the need for a HOA to maintain reserves. In todays environment many Associations will not qualify because of vacancies, delinquencies and lack of reserves. By refusing to accomodate a buyer with less downpayment then the Board believes is adequate is the same as discriminating against a buyer/borrower because they are of a race or class of people the Board members don’t think are good enough or responsible. Plenty of room for lawsuits in that case.

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