The FHA banking requirements (which have always been in place) and now not only are being enforced but have been amended to further protect the bank’s interest require associations to be in healthy financial condition. Lenders, who would in the past check to see you had a plus in order to sign off on a loan are now required to actually follow standards (Had these procedures been followed years ago, the housing market and our economy would not be where it is today).
No longer can associations believe owners will be able to sell their homes with ease. Associations must ensure there are adequate reserves and budgets are being properly set to meet operations.
There are many more guidelines Association’s must follow if they want to qualify for FHA backed loans which are the most convenient, affordable and conventional loans on the market. For more information you can visit the FHA website atwww.fha.gov
and click on the link FHA Resource Center.
I suggest she carry the mortgage. Buyer can not back out, usually. She'll get terrific interest on her money; collateral of real estate is the best. She knows the value of the home. Real estate prices are about as low as they get go unless she lives in a ghost town situation. So she has the best of both worlds. Great income; increasing asset.
Fascinating! We've seen this coming, as lenders care about the financial health of the buyer (primarily) but have been gradually becoming more sensitive to the financial health (or lack thereof) of the association. Please contact me offline with the specifics. 800/733-1365 x311.
FHA loans are not the only go to for purchase or refinance mortgages. There are numerous other portfolio lenders who will finance this transactions. Find a local smaller bank and you may have some luck. The downpayment may be a little higher or the interest rate a little higher, but its possible to sell condos without FHA. Any seller and seller's agent in this market should have been out in front of this.
we are in this situation. a small condo of less than 5 units with 3 folks on the board (one is me). the offering plan made no provision for a reserve fund, and we collect barley enough for expenses let alone reapirs, so we're always operating at around $1k in the nbank at any time if we're lucky. The IDIOTS that own the other units don'think this this is a problem- they LOVE their low common charges that have been in place for 8 years with no increase, and refuse to increase them. My partner and I are the only ones who will agree to doubling the charges, and even then I fear that's not enough. Hate to piggyback on this thread - any thoughts? How much money should a condo have on reserve? Does a separate account need to be opened for reserves? Thank you!
There is no indication that this was a FHA underwritten loan - all readers of this site on a regular basis are aware that no condo unit purchaser can obtain a FHA loan unless the condo itself is on the approved list.
However, many financial institutions writing loans for condos and HOAs are following due diligence procedures and asking for information similar to and in addition to minimum FHA requirements. Few loans will be available for any condo complex not having adequate financing, including reserve accounts. The 10% per year line item on a budget is a guideline - if the appraiser notices roof damage, or other items needing expensive maintenance, the underwriter is entitled to ask for further financial information prior to approving an individual loan.
The condo in this inquiry appears to also have delinquent accounts or an insufficient operating budget which has caused the condo board to use "reserve" funds to pay for ongoing maintenance. Or, the board did not correctly document transfer of reserve funds to operating to pay for maintenance that correctly was to be funded by the reserves. This would enable them to document that the reserve balance is low due to the correctly used funds.
Owners need to be aware of the financial condition of their condominium prior to listing their unit for sale.
Susan's inquiry about the level of reserves - should be based on a Reserve Study. These funds should be in a separate account and must show on a budget as a separate line item.
Currently our company is working with several management companies on behalf of their condos in developing stronger plans for meeting the lending requirements. First item is revising the budget to correctly identify line items that are of importance to lenders - and which actually are vital for clarifying financial challenges for the condo. Then there is the need to address the "loss of income" due to delinquent accounts. Third is strengthening the Reserve funding. These are concepts that volunteer directors must come to understand as well as the individual community manager for the professional management company.
I am the president of an association of 500 units in NJ where our FHA approval ran out in July. It took 3 months of paperwork but we just received approval for another 2 years. I know of other associations who have not gotten approval and some who are not even trying.Our association is not under any obligation to solicit FHA approval, BUT, if your association cannot past muster, it may be a good indication that it is not being run as it should. I personally have mixed feelings about this, but I am hoping that the fact that we are approved will help our resale values from falling in relation to those that are not approved. Time will tell.
As far as the funds go, such things as roof replacement should be paid out of the reserve funds. The problem is making sure the reserves are properly being funded.This is the responsibility of the Board. They may have to make the hard decision to raise fees or do assessments in order to keep the reserves where they need to be.
Your friend, in order to protect her investment, may need to get involved in the association.I will tell you this. It is the most thankless job I have ever done for free. Unfortunately, most people don't get involved until it affects them personally.I wish her luck. First thing would be to get a copy of the budget and work from there.
Susan, many of the firms in my portfolio are small condominiums (4-10 units) and we run into your issue quite a bit. First, check your docs. You usually can change your condominium fee with a vote from the trustees, not all owners. So if you can get your fellow trustees to agree, the rest of the owners have to pay the new monthly fee. Yearly reserve allocation should be at least 10% of your operating budget for the year. However, if you definitively want to know how much you should have saved, pay for a reserve study. Specialists will come to your property and investigate everything top to bottom. Once they get an idea of the necessary work that will be needed over 5/10/20 years, they can give you a set schedule for your reserve. It costs some money, but the information is often invaluable.
To answer the original question, if your friend is not on the board then she needs to contact them immediately. They should issue an assessment to replenish reserves, but they are not required to. Your other option is to go through another, non FHA, lender.
The FHA approval process is long, but worthwhile. Our association finally went with a real estate lawyer to complete the requests, some of which were not easy to understand. You are aware that FHA requires the reserves, which sets the standard.
We have always had funds that functioned in reserve in our Money Market account -- trying to keep at least $40,000 in it at all times. We are a 40 unit association in Missouri. However, due to the information posted by others on this blog, we have recently established a more permanent reserve utilizing CD's, keeping at least $15,000 in our money market at all times. It is a start.
I highly recommend you become active in your association, even if it means attending board meetings. I agree, it is a thankless job, but one that means so much if you want to keep fees at a miniumum. Ours have been $150-160/mo for 8 years now.
In the above example (initial message), the "seller" became the victim [Board refusal to transfer $$$$ into "The Reserve Fund"].
It could have been the "buyer" as the victim -- when notified of a post-sale Special Assessment.
There is NO Condo Police to urge the Board to transfer $$$$ into "The Reserve Fund":
And the “condominium roulette” is described here:
I feel your pain. I'm in an 8 unit building. 2 units refuse to pay dues of $140, HOA prez is underwater and won't raise dues, and 1 unit is foreclosed. Basically 5 units carry the building and noone seems to care, including the HOA prez. Im on the Board, but it really doesn't exist and doesn't meet. I want to sell in a year but I can foresee major problems as we go further and further into the hole each year as an HOA. I've thought about hiring an attorney for myself, but I'm not sure if that would accomplish anything. I've also been told that most home sales in my area are through FHA financing.
Also to the poster, the same situation happened to me except it was the week I was to close on a condo and the bank decided the reserves of the building (around $1k) were too low and they pulled my financing. I was devastated and homeless since I'd already ended my apt. lease. What a mess.