Tuesday, October 6, 2015

Condo Loans

HUD hands down stricter condominium lending regulations every year!  In September 2015, HUD stated that loan approval would not be granted for communities where the Declaration of Covenants gives the Association approval authority over leasing units.  During the question and answer session, it was added that the Association cannot have the power to evict tenants. 

Although not every single loan is directly tied to FHA/HUD, 90% of all loans are impacted.  Other lenders need to be able to sell their loans on the secondary market, which can’t be done unless they conform to FHA/HUD demands.  So unless you want cash-only home sales (i.e. slum lord investor owners) dominating your community, you should look to amending your leasing language.

Even for communities with pre-approval HUD/FHA status (which must be done every two years), we are seeing each new home loan being scrutinized for community restrictions.  It’s best to proactively address this situation, before an angry mob of homeowners shows up at a meeting, unable to sell their homes.  Hopefully, your governing documents give the Board of Directors authority to automatically amend to comply with federal regulations, without the need for a community vote!

HUD also clarified that the Association can:
  • Restrict total number/percentage of units that can be rented 
  • Maintain a hardship exception 
  • Require the landlord to provide a copy of the lease 
  • Require that the lease be on a specific form
  • Set minimum and maximum lease periods 
  • Require that the lease conforms to the Declaration 
  • Require the landlord to check the Registered Sex Offenders list
  • Require rent to be assigned to Association if the unit owner is delinquent
  • Provide corporate leasing restrictions
The Association cannot
  • Ban all leasing, except in age-restricted and affordable housing communities 
  • Require the owner to live in the unit for X amount of years before being allowed to lease 
  • Restrict leasing by delinquent owners 
  • Require tenant interviews with the Board 
  • Require credit references 
  • Require criminal background checks (except for the Registered Sex Offenders list) 
  • Be granted automatic power of attorney 
  • Have the power to void leases
  • Allow short-term leasing
As always, consult with the Association’s attorney before acting upon the above information.

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