Tom Parke, Mortgage Lender, discusses what he and his team look for when they are approving a mortgage loan on a home with a homeowners association.
Homeowners Association Problems
When there is a homeowners association present there are another set of questions or concerns that a lender is going to ask and they might have. We always want to address them upfront because that is the last thing you want at the 11th hour after the borrower has been approved by underwriting, after the appraisal is in and after everyone is ready to pop the champagne, you don’t want to find out that there is an issue with the homeowners association or with the condo project itself.
If there is a homeowners association project we are going to ask first and foremost, is there any litigation currently pending and what is it regarding?
If it’s a slip and fall, or a frivolous lawsuit, that is probably not going to be an issue. But, if it is a major construction defect or SBA litigation that could be a bigger issue that could preclude the company from lending on a condo project or whether there is an HOA present.
Breaking Homeowners Association Rules
- We will ask how many homeowners are delinquent with their homeowners’ association dues.
- Is it more than 15% of the homeowners that are more than 30% delinquent?
- We are going to want to know is there more than any one person or entity that owns more than 10% of the units in the condo project.
The reason we are asking is there pending litigation, does more than one person or entity own more than 10% of the units in a condo project, are more than 15% of the homeowners delinquent in homeowners association dues, the reasons we are asking that is we are trying to assess the health and stability of the homeowners association.
If there are an obscene amount of homeowners that are delinquent on their HOA dues, if one person or entity owns more than 10% of the units and they go belly-up, that’s not good. If there is litigation and the homeowners association is going to be liable for it, these are all things that could bankrupt a condos budget and bankrupt the HOA.
If a homeowners association is bankrupt that jeopardizes the stability of the collateral that secures our loan.
- We want to make sure if there is any pending litigation – how serious is it?
- If there are a lot of homeowners association delinquencies – how healthy is the budget of the condo homeowners association and can they stomach a big blow in case there are any incidents that need to be addressed?
- If one person or entity owns more than 10% of the units – how many units does that person own? If they own 30 units in a condo project and those 30 units all go belly-up that can be a death blow to a lot of HOA’s.
These are the thorough things we are going to ask upfront because you do not want to find out at the 11th hour that the homeowners association collateral that is going to secure the loan is too risky to lend on.
Additional considerations may include:
- The homeowners association rules and regulations
- Homeowners association bylaws
- Are there rental restrictions?
- Does the borrower intend to occupy the home or will the intended use be income property?
- Are the HOA Board members enforcing homeowner association rules?
- Is the homeowners association management company doing its job?
- Are California hoa laws and regulations followed?
- How high are the homeowners association fees?
Learn more about the home loan approval process including approving loans with homeowners association.
The Tom Parke Mortgage Team at Mason-McDuffie Mortgage Corporation is a direct mortgage lender specializing in residential real estate finance for home purchases, refinances, lines of credit and construction renovation.
The Tom Parke Mortgage Team has earned “President’s Club” Honors every year since 2009 and is ranked among the Top 1% of all loan officer teams nationwide for production.
The Team’s goal is to enhance the financial lives of their clients, business partners and colleagues. With more than sixteen years in the financial services industry and after having closed the home loans for over 2,200 families (and counting!), The Tom Parke Mortgage Team offers a wealth of experience and knowledge in the home financing process. Tom may be reached at 415-828-5004 or www.TomParke.com.
Kathleen Daniels is the broker-owner of KD Realty in San Jose and owns and manages https://NeedProbateHelp.com. While Kathleen specializes in probate and trust real estate sales, she also represents buyers and sellers of non-probate homes.
If you need to sell a home with or without a homeowners association, or if you are in the market to buy a home, hire an agent that has a team of experienced professionals to serve you. Call Kathleen at 408-972-1822 to discuss your needs and learn what Kathleen and her team can do for you.