Residents in 55+ Communities Claim Reverse Mortgage Victories

More than a year after their story was first publicized, residents at a 55-and-over community in Arizona claimed an important victory that will allow them to secure reverse mortgages and other Federal Housing Administration-backed loans on their properties.

Officials at Sun City West, an active adult community located about 30 miles to the northwest of Phoenix, voted last week to change a key covenant that had scuttled Home Equity Conversion Mortgage lending since the fall of 2016.

The board was responding to a groundswell of public support for a rule change, according to Liz Recchia, the government affairs director of the West Maricopa Association of Realtors. That group had helped organize a task force to deal with the delays in FHA loans at Sun City West and the nearby Sun City community, with members attending board meetings and writing letters to local newspapers.

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“Add that to the reality that Sun City and Sun City West are now well-known as not qualifying for FHA, days on market increasing, an increasing number of residents [who] could not get a reverse mortgage, and pricing beginning to lower, and you had several compelling reasons for the Sun City West board to address the issue,” Recchia told RMD.

Free assumability at last

The issue at heart was the Department of Housing and Urban Development’s so-called free assumability clause, which prevents the approval of any FHA loan that would leave the government on the hook for potential costs in the event of foreclosures. At the Sun Cities and other 55-and-older communities with robust recreational facilities, buyers generally agree to pay a one-time set fee at the time a property is transferred — in Sun City’s case, $3,500 — toward the maintenance of shared clubhouses, pools, and other amenities. 

But the communities asserted that the fee must still be paid in the case of foreclosures, which led FHA to start balking at insuring the loans in late 2016 — despite the fact that the free-assumability language had been on the books since the mid-1990s.

Over time, a standoff developed between the two sides, with real estate agents and lenders asking the communities to change their bylaws, and the community recreation boards insisting that HUD and FHA amend their rules instead.

This, in turn, led to consternation for homeowners like John and Deena Baird, Sun City retirees who had hoped to secure a HECM on their home.

“To be quite candid with you, when I’m down to one fixed income, I can’t live here,” Deena Baird, a retired dental assistant, told RMD earlier this year.

But thanks to the work of the task force and other players in the area, change has come to Sun City West and other similar communities, including Arizona Traditions in Surprise, Ariz. In Sun City West’s case, leaders simply added an exemption to their rules regarding the mandatory asset preservation fee to its bylaws.

“The Asset Preservation Fee shall not apply upon involuntary transfers of a Residential Unit only to the foreclosing lender or the lender’s governmental guarantor (e.g., HUD) via foreclosure sale, trustee’s sale, deed in lieu of foreclosure, or similar mechanism,” the new rule reads. “Any other purchaser at a foreclosure or trustee’s sale for value is not exempt.”

A vote on a similar change at Sun City is expected this week, and there’s optimism that the community will follow its western counterpart’s lead.

“We are pleased to report both cities have heard their residents’ urgent pleas and have taken a serious and positive approach and want the issue with HUD resolved ASAP,” reverse mortgage specialist Michael Thomas — of V.I.P. Mortgage, Inc. in Peoria, Ariz. — wrote in an e-mail to members of the task force earlier this month.

“Hopefully, this will put to rest the 18-month moratorium on FHA-insured reverse mortgages in the Cities,” Thomas concluded.

Written by Alex Spanko