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Realtors Fight HOAs’ Reverse Mortgage Hangups with Education

Despite progress in some communities, homeowners in certain 55-and-over developments face barriers to reverse mortgage and other Federal Housing Administration-backed products — and one group is fighting back with an educational campaign and an organization designed to encourage residents to speak up.

Arizona homeowners first began running into issues with FHA loans last fall, when the administration and the Department of Housing and Urban Development began enforcing the so-called “free assumability” clause. Certain 55-and-up communities — including Sun City and Sun City West in Arizona — have private recreation departments that require homebuyers to pay a one-time fee of $3,000 to $3,500 to support the ongoing upkeep of shared amenities, such as swimming pools and clubhouses.

But many associations charge that fee any time the property changes hands, including in cases of default or foreclosure. For that reason, the FHA won’t insure the loans, as the federal government can’t be on the hook for additional cash outlays that aren’t associated with the property itself.

The sudden enforcement of these rules, which have been on the books since at least the early 1990s, has caused consternation among older homeowners in these neighborhoods — including Deena Baird, who has been trying to secure a Home Equity Conversion Mortgage on her Sun City, Ariz. home for the past two and a half years with no success.

In short, local homeowners’ and recreation associations take the stance that it’s up to the FHA to change their rules; opponents counter that such a policy shift could take years to sort out, and that the change must come on the local level.

Last month, a group of area Realtors opened a new front in the battle by producing materials designed to inform residents about the predicament while also encouraging them to stand up and take action.

“If you and your neighbors think FHA product availability is important to a healthy real estate market in your association, petition your Board of Directors to change the governing documents,” a new resource from the West Maricopa Association of Realtors (WEMAR) reads. “Or run for the Board of Directors and direct the change you want.”

It’s all part of an attempt to replicate the success seen at the Westbrook Village community in Peoria, Ariz., where residents successfully petitioned for an exemption to the fees in case of foreclosure. By rallying homeowners to the cause, WEMAR government director Liz Recchia told RMD, local real estate agents, mortgage brokers, and residents can find success in numbers at meetings.

“Those residents have backup. They have more than one person there,” Recchia said. “It’s not just one person hanging out there by themselves.”

WEMAR’s outreach specifically mentions the potential for reverse mortgage hangups.

“Cost of living increases, medical care, and other expenses may mount up over time, and a reverse mortgage may be the best choice to access the equity,” the group’s flyer reads. “If you own your home and there is a possibility you may need access to your equity, you should care about having your future limited.”

So far, Recchia has heard positive feedback on the resources, which include one full-size flyer and three shorter postcards. One response came from a lawyer who works with homebuilders, expressing a desire to tell his clients to include foreclosure exemptions in homeowners’ association rules before the developers even break ground.

“Let’s start the HOA governing documents [so] we don’t have to worry about this issue,” Recchia said.

Written by Alex Spanko