I'm often asked, why is it so difficult to get a loan on a condo? Well it is simple if the complex is perfect, has zero issues, a certain ratio of owner/tenant occupied and is also approved by FHA. Well, in these times, it is tough for all condo complexes to meet this criteria. Sometimes even harder to get the info from the management companies they hire to run the place. See great blog with further info below.
That, in turn, affects everyone in the development, not just homeowners in financial straits.
"When someone doesn't pay assessments of the community, they're picking the pockets of every one of their neighbors," said Andrew Fortin, vice president of government and public affairs for the Community Associations Institute.
The current problems only exacerbate what's been an issue for years, some say. Many condo associations aren't prepared for major maintenance jobs due to ill-funded reserves and insufficient planning, said Evan McKenzie, a political science professor at the University of Illinois at Chicago, who has written about homeowner associations.
"This is a very troubled housing sector right now," he said.
To compensate for lost income, some associations are hiking assessments on all residents, said Frank Rathbun, vice president of communications and marketing for the CAI. Many are also cutting back on spending, which could mean anything from deferring capital improvements to skimping on landscaping projects.
Some are employing tougher tactics to collect dues from homeowners who are behind on payments, more frequently slapping liens on properties and in some cases foreclosing on those who are delinquent. Fortin said that usually the threat of a lien is enough to get most people to make an effort to become current on their dues.
But getting tough about collections is easier for professionally managed associations. Many smaller buildings are managed by a board comprised solely of residents, and that can get awkward because they have to enforce rules on neighbors who might be dealing, say, with a job loss, said Richard L. Thompson, president of Regenesis, a homeowner association management consulting company.
Meanwhile, windows and roofs may need to be replaced or streets repaved. If there's no money, the projects won't get done.
Lenders shun some buildings
It's also getting tougher for associations to get a loan for the extra funds they need, when drawing extra money from members isn't enough, McKenzie said.
And there's another consequence of dues-dodging neighbors: Lenders are less likely to approve a refinance loan for anyone in the building, or a purchase loan for prospective buyers, if a significant number of owners are past due on their assessments.
If dues are 30 or more days delinquent for more than 15% of the units in a condo building, the entire building earns a "non-warrantable designation," and borrowers are unable to obtain a typical mortgage loan, said Dan Green, a loan officer with Waterstone Mortgage, in Cincinnati.
"The guideline applies to all government-backed loans -- from FHA, Fannie or Freddie -- and it applies to every condo in every market," Green said in an email.
BOTTOM LINE --- it get harder and harder to make a living! Have you seen the large number of condos that are seeking buyers but lenders aren't interested particularly in new condo conversions!