Alright...Happy Friday to All and I hope your day is going well.
This is my PSA for this month. I hope you are never in this situation.
SO...I am going to save all of you some time when showing Condos or property where the HOA has the Master Insurance on the exterior of the building(s).
MAKE SURE THE HOA MASTER INSURANCE PLAN IS RCV FOR ROOFS!!!
(Replacement Cost Value) Find Out Before Writing the Contract or Listing Papers.
We all have done it...Sold a property where a Buyer is buying the home but the HOA is in charge of the exterior and roof insurance. At least most of us have.
I recommend asking that question almost first rather than after going under contract. Trust me on this... save yourself two unhappy agents...an unhappy buyer and unhappy seller and an HOA that appears to not give a crap.
Especially if the buyer is getting a mortgage!
I have done it dozens of times over my career....and Never once...as in ZERO - Zilch-NADA....have I had a deal die because the HOA had incorrect insurance.
Remember this nice listing I posted about many months ago?
Yep...A great Condo in a fantastic small filing of 18 Units.
In November the HOA Board voted to accept a new bid on their master insurance policy. And switched providers to a company called Grinnell which was represented by a different agent and company.
Someone forgot to tell them to read their governing docs about having Full Coverage on the exterior, including roofs, or else you could not get a conventional loan.
Yep...the HOA is in violation of their own governing docs that are recorded at the courthouse.
Buyers already could not buy with FHA or VA and now Sellers cannot even sell Conventional.
Here is the answer from my preferred lender who was not involved:
"Short answer: You are assessing the situation correctly. Sellers will only be able to sell to cash buyers or buyer that obtain ‘in-house/portfolio’ mortgage loan financing (typically balloon loan product) from a local Bank, assuming the Bank would be ok with ACV policy. Financing Condo’s on the secondary market is tougher than it’s ever been. The secondary market requires RCV (replacement cost coverage) insurance policies. (ACV) Actual Cash value policies are not allowed on the secondary market." WOW
At this time, the roof is fine...but HOA's new policy only allows for ACV (Actual Cash Value).
IE: A roof brand new is close to 100% Value...a roof 5 years old loses 5 years worth of value. This roof is 7 years old and in excellent condition but is not worth full amount of replacement...probably only about half or less (my estimate).
Doesn't seem like a big deal until you realize that Freddie Mac requires all conventional loans to have RCV (Replacement Cost Value)...and the secondary market will not touch the loans that are in violation of Freddie Mac.
https://guide.freddiemac.com/app/guide/section/4703.2
I agree with Freddie Mac and confirmed it with my preferred lender today as you saw above. Thursday was supposed to be closing day right up to the point that the buyers lender ( not my buyer or lender) denied the loan on Wednesday.
SO BOOM! Deal is dead. Buyer is out appraisal and inspection money...seller cannot close a property that is in an estate and cannot close the estate by the end of the year.
Back on the market today...and who knows how long it will take to get sold.
And what about the HOA and Insurance agent who I had been talking with many times up until I pointed out their errors? CRICKETS! Nothing but silence.
Monday I will let the HOA know that if they cannot correct this and give me a guarantee that they will... I will send a letter of explanation to every owner in the complex explaining their future predicament.
Until Next Time...Have a fantastic weekend and make sure the secondary market will buy the type of loan you (or the other agent) is using for the buyer. Mike
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