Establishing Legal Ownership:
Condos, Dwelling Parcels, PUDs
I've "been around" ...
Around the mortgage business, that is. For over 40 years.
And during those 40 years, besides being a Mortgage Originator, I also held an IL Real Estate Appraiser license for around 2 decades. Plus I was honored to serve on my local Village Board.
My time served on that Board included working on a Comprehensive Plan for the Village and on the Building and Zoning Commission. Each capacity fulfilled provided me with amazing opportunities to learn and expand my knowledge. Most importantly for me was what I learned regarding real estate and the financing of it. The experience complemented my work immensely.
But even with all these varied opportunities and experiences that have come my way over the years, I still run into "firsts" as a Mortgage Originator. Things I've just never heard of or encountered anywhere before.
And yep, as you've probably guessed, such was the case with one of my Borrowers last month ...
I was working on their application for mortgage and the property they were buying was described as an "attached dwelling in a Planned Unit Development". The Planned Unit Development (commonly referred to as a PUD) was described as such in the legal description of the parcel, within the subdivision that the parcel was platted in.
Now it's important to note at this time: The term "condominium" appeared nowhere within the legal description provided. The first I saw the term used was on the appraisal which had been completed on a condominium form (known as the Fannie Mae 1073 for a conventional loan).
The questions that immediately popped into my mind were:
- Why was the appraisal for a PUD property being completed on a condominium form ... and appraised as such?
- Why did the appraiser compare this PUD property to condos?
- Why was the appraiser insisting this property was a condo after we had ordered the appraisal as a Single-Family Attached Planned Unit Development (PUD)?
As the Rules, Forms, and Approaches for each property type valuation are different ... different lending guidelines are required for each property type too. Clearing this up was important.
Now I'll admit, there are always exceptions to the rule, but in the majority of instances, an Illinois property cannot be declared a legal condominium unit unless a Declaration of Condominium is recorded as part of the Illinois Condominium Property Act. So my next call was to the title company.
That call confirmed that there was no Declaration of Condominium for the property or the immediate development. The property was, in fact, a "dwelling parcel" and defined as such by the legal description and the original platting of the phase of the development it resided in.
So next, I asked for the survey of the property parcel be provided, since the defined lot lines and dimensions were unclear on the recorded Plat of Subdivision I found online. Gaining knowledge of the defined lines and dimensions of the property site were important, as a PUD property differentiates itself from a Condo ownership by its very definition.
- A PUD features an individually-owned parcel/site
- Condo Ownership features a shared or common site
Calls to the Management Company for the property association and the Township Assessor provided me little or no assistance. The Management Company said they couldn't make a definitive determination regarding ownership status. The Township Assessor said that they treated the value and assessment of the property the same regardless of the property's legal ownership rights.
Notably, in my world, condominiums have no "land value", as no site or lot is individually defined or owned. Yet, our subject property had a breakdown of land and building assessments.
My search for answers was becoming daunting, but as the LO and lender, we had to determine and document:
- The true Property Rights (Ownership Type) of the Subject Property
- The correct Appraisal. We had to make sure the Appraisal Report was on the appropriate form for the financing program being utilized by the Borrower. (And should the appraisal need to be corrected, make sure no additional fee is charged to the Borrower or to us for the correction performed.)
- That a Closing with correct documentation take place.
The Appraiser and the Appraisal Management Company finally came to agree with me that this property was NOT a condo. They eventually identified the property for what it was ... a "dwelling parcel"- within a Planned Unit Development (PUD).
And even after all the questions, searches, and corrections ... the loan closed on time. The post-closing process was completed.
Now there is no doubt that this subject property was unique in some aspects. How upon first look, it might appear much like a condo.
But it's vitally important that the legal ownership of property be determined and defined for the Borrower/Buyer of the property's sake (and the Lender's). Those determinations and definitions go way beyond appearances or physical aesthetics of the property. It took my scratching way below the surface to reveal the truth of this property.
There were many lessons to be learned from this property and its transacting. But perhaps most notably it pointed out the importance of working with an experienced knowledgeable Loan Officer (and real estate agents) ... a professional willing to be dogged in their search for answers and facts.
Those answers and facts resulted in Buyers/Borrowers knowing for sure that the ownership in their property is held in its correct and legal form ...
I'm easily found at: