I recently had this breeze of a sale. We had scouted out every condo for sale in Bethesda and settled on Crescent Plaza, right in the heart of downtown Bethesda as a new investment condo. Price was fantastic. Sellers found a place to live fairly quickly. Listing agent was a dream to work with....
Enter havoc. About 10 days before settlement the lender, a Credit Union, sent a note that sent chills down my spine. Unwarrantable condo. Investor ratios are off, self managed and not enough in reserves. We had already asked these questions to ensure that the investor ratios would work for the lender! The buyer's first choice of lender would only go to a 30% investor ratio and I already knew they were under 50%, but just... So before even going down that route, I had asked the condo association if they had any unpaid condo fees, if their reserves were in line and their exact investor ratio.
But now I realize it's not enough. Now we have to know how many second home owners there are and more importantly, how any particular lender is going to interpret that info. Because our problem stemmed from 8 second home owners who were counted as investors by that lender. Yikes. There went our 50% investor ratios.
The credit unions do vanilla. They do vanilla fine but if there are any issues beyond that they simply cannot adjust since it's not what they are set up for.
Hence, we quickly had to go to the third lender to see if they had an exception process we could use. Between BB&T and Prosperity they both felt they could get the loan through but since the rate was great and Prosperity could close on the day we originally scheduled (only 10 days in the future) we were dancing! And we danced up until 5:00 pm on the night before settlement, scheduled for 8 am the next morning, when the condo exception dude in CA said, "nope." He didn't like the reserves which were not as much as he wanted to see for a building of this age. The underwriter had been fine with the reserves since I'd been insistent on asking before we progressed to spinning money. OMG.
The sellers had bought another house with a coinciding settlements contingency, which was very smart. The seller of the house they bought didn't seem to understand that risk and had already moved out to their new house! Imagine their utter shock when they were told their home wasn't going to settle. So we had lots at stake with this first leg in the chain. And our buyers and sellers were all calling us to figure out what to do. At that point we were ready to admit defeat and had my buyers sign a release since it just wasn't going to go through. Sellers were out of town and didn't sign right away. And then yet another miracle.... the lender here went back to the condo association and got more data on their budget which allowed her to put it back through the exception process and it got approved!
The condo in Bethesda at the Crescent Plaza is in fabulous shape and the building is one of the best managed I've seen. Their reserve drama stemmed from how they had spent some money on upgrades that saved energy and were wise choices but didn't put the right numbers on the books. Had it been they were not so well managed, my buyers rightly should have taken this as a sign to bail, but there were not any other condos they liked so well as this one. Condo fees are low, location is to die for, condition is superb and renters just love the Metro access. And who wouldn't love walking out to shops and restaurants any night of the week!
So lesson learned: even more questions up front!
- How many investors exactly are in the building?
- Does any one person own multiple units?
- How many second home owners are there?
- Anyone not up to date on their condo fees?
- What is the % amount of reserves?
- What is the $$ of reserves?
- How much distress in the building?
- FHA approved building?
The problem with getting the answers to these questions is it's very difficult. They condos don't want to answer questionnaires until they are sent from a bank with a fee. At this point, I think it's a wise investment to pay the money they want, get the answers and then make sure the lender can lend based on the answers BEFORE starting the process. Whether listing or helping buyers we need to know the info before hand to avoid the disastrous unraveling of real estate that could have happened but for the tenacity of two agents and Karen Van Zandt from Prosperity in Bethesda!
So when you happen upon my newest listing that will be coming up at The Iowa in DC or perhaps another condo in Bethesda, don't be surprised if before we take your contract we want to know if your buyer's lender will have any heartburn over any of the provided answers! And if you are thinking about buying a condo in Bethesda, I'm happy to help...