Today, the vast majority of the loans written here are government-backed mortgages (FHA, Fannie Mae and Freddie Mac) with a maximum loan limit of $729,000. I would venture to say in other parts of the country, where prices are less (along with the loan limits), that number is even higher.
Major banks are doing a lot fewer non-conforming jumbo loans because the pool of investors who previously bought these (pension funds, insurance companies, etc.) has shrunk because they got badly burned from the large number of nationwide foreclosures. So any bank that is making these large loans is doing them with the idea that they may have to sit on them for a long time till they can find an investor who will buy them. That also limits how much money a bank can lend out because, instead of reselling the loans and getting their money back, that money is now tied up.
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Among the many things Fannie Mae looks at with respect to condos and other communities that have Home Owner Associations are what percent are owner-occupied as opposed to rental. If the ratio shows too many renters, no loan. They also won’t deal with properties that have ongoing litigation. That can be a deal killer no matter how small the lawsuit is.
I recently came across a large complex on the Peninsula with 15 to 20 buildings that was just re-roofed. It seems the contractor who did the entire complex didn’t do a good job on just one of the buildings so there was a leak into several units. The contractor dragged his feet in repairing this and the HOA ended up suing.
Normally, that wouldn’t be a big deal. Lawsuits are not unusual with construction and this one was small. Well, FHA will not lend on this complex at all until the suit is resolved, which won’t be untill late summer or early fall. That has created a big mess for all the owners who want to sell because now most buyers can’t get a conventional loan. There are a few banks that will lend on this complex but they want a much bigger down payment. That higher cash requirement really reduces the potential number of buyers. As a result, the inventory in this place is rising and things aren’t selling.
Sometimes the board of directors of these HOAs like to flex their muscles and are perhaps a little too trigger happy in filing lawsuits. Under normal times that may be OK and most homeowners wouldn’t think twice about it or even care. But today, any small suit can negatively impact the ability to sell your property if FHA decides not to lend on your complex.
I know of another situation in which one complex is getting too high a percent of renters and to mitigate the problem, they are changing their rules to make rentals less commonplace. This change may impact a buyer’s decision because of increased restrictions and thereby making these units harder to sell. Of course, not being FHA-approved is worse.
Perhaps those living in complexes may want to go to one of the HOA meetings and make the board of directors aware that any potential lawsuit can really hurt the homeowners ability to sell their place in a big way. You can also find out directly if your complex is FHA-approved. If not, you can take corrective steps to resolve the issue before there are a bunch of angry homeowners who can’t sell their homes.
Steven Hyman is the broker and owner of Century 21 Sunset Properties. He can be reached at 726-6346 or at www.century21sunset.com
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