Mortgage did not pass condo approval

[SmartMoney]

Something isn't adding up......Lenders typically do not want the condo docs......what we do want is the management company and $80 for the management company to complete the letter (questionnaire).

The delinquency rate is a moving target and really depends upon the date they put it in for review. Meaning, if payment is due the 1st and not considered late until the 10th, you really want to avoid pulling the condo letter (questionnaire) on the 11th or 12th, when it is most likely to be at it's highest delinquency. Timing is everything. So is the number of units. If you have 10 units and 4 are late......you are at 40% delinquency. But the seller can pay three additional condo fees and be at a 10% delinquency. Also, if there are any units that are vacant or bank REO, they are not to be included in the calculations.

All these little details can send a transaction spiraling into the trash heap. Ask a second set of eyes to look at this.....it could be the lender is just tired, which happens frequently when a file is just draining to get to the settlement table.

[Alexpi]

Thanks for all the suggestions!

I found some more info last night...Apparently the HOA fees are not as delinquent as thought. The Assessment fees have been counted along with the regular HOA fees so there really isn't that many delinquent accounts for HOA fees its the assessment.

Also found out the board decided all payments can be made quarterly rather than monthly...so when the management company sends out a list of outstanding HOA fees not only do they seem higher than normal because of the assessment but also because the HOA fees are paid quarterly.

Our broker spoke with the sellers and they told us that they are working with the board to have everyone pay up in the next day or so to get this number down. The sellers have already moved so want to get this deal done as soon as possible.

Thanks for all your suggestions! Looks like closing will be delayed but should happen in the next 7-10 days.

[tigger37708]

Originally Posted by Alexpi

Thanks for the info.

The owner of our unit is up to date. It is other owners that are delinquent. There was no date specified for the condo docs but I have learned my lesson and will always make sure that is included in the future.

I find it hard to believe that the management company really has 40% (as they claim) delinquent. I think there is confusion with an assessment from a few years ago.

The HOA gave owners the option to pay the assessment at once or add the amount onto their monthly HOA fees. I think the confusion is that the management company is not breaking out which part is HOA fees and which part is for the assessment. Not sure what to do here...The management company says they don't want to put this in writing which is what our lender needs to get this past the underwriters.

Hopefully have more info soon! please keep all suggestions coming!

Red Flag.
Consider this your lucky day.
Walk away
A condo development with a high rate of delinquency is a disaster waiting to happen.
You will have deadbeat neighbors who are delinquent on HOA fees.
Guess who they will come after to make up the difference?
Correct!
The people who are paying.
That means you get to pay more. to make up for the delinquents.
maybe a lot more.
and if you don't pay
they can sue you, fine you and even foreclose on you.

[MikePRU]

Originally Posted by Alexpi

Thanks for all the suggestions!

I found some more info last night...Apparently the HOA fees are not as delinquent as thought. The Assessment fees have been counted along with the regular HOA fees so there really isn't that many delinquent accounts for HOA fees its the assessment.

Also found out the board decided all payments can be made quarterly rather than monthly...so when the management company sends out a list of outstanding HOA fees not only do they seem higher than normal because of the assessment but also because the HOA fees are paid quarterly.

I'm totally confused by your post. Either units are delinquent or they're not. For your purposes, it doesn't matter if we're talking about the condo fee or an assessment nor is it relevent what the payment schedule is. As a condo owner, YOU will be reponsible for picking up the slack if your fellow unit owners are delinquent. If you choose not to pay the bills yourself, then the building will fall into disrepair and your unit will end up devalued or worse, worthless. The last thing you want to do is get in bed with a bunch of dead beats.

[Alexpi]

Thanks for all the replies!

Turns out there are 5 owners delinquent and we need 3 to be in compliance with our lender...Any idea if it is legal to pay the outstanding HOA's on behalf of another unit owner?

The total amount is not a whole lot (<$1,500) and we could work an arrangement out with the seller to share the cost. Does anyone know if this is something that could be allowed?

[IC_deLight]

You may be dealing with a situation where the management company is deliberately creating delinquencies in order to run up late fees and collections costs. Some management company organizations are well-known for engaging in these tactics.

Condos are NOT HOAs.

As another poster noted, your distinction between "condo fees" and assessments does not make any sense. Assessments are condo fees. In addition, the slow response time for producing resale certificates or resale data is often due to the management company, not the seller. The only entity that can provide the information is the condo corporation board or management company. Typically the management company's agreement demands that the management company assumes that responsibility. You may be dealing with the same situation when you are trying to sell.

Don't be so quick to fall in love with the look of the condo. Appearances can be quite deceiving. The invisible legal entanglement of the condo corporation can far outweigh any physical attributes of the condo in a very negative fashion.

[khuntrevor]

There is suppose to be a list of FHA approved condos. I bought 1 in Phoenix and one in Summerlin each for about 20 cents on the Dollar. No loans was the reason for the cheapness.

[IC_deLight]

Originally Posted by khuntrevor

There is suppose to be a list of FHA approved condos. I bought 1 in Phoenix and one in Summerlin each for about 20 cents on the Dollar. No loans was the reason for the cheapness.

The seller could care less whether you have a loan. The seller and its mortgagee get the cash proceeds of the sale regardless of whether you pay cash or borrow money from someone else to pay cash.

"20 cents on the dollar" has no context. Whose dollar? An entity trying to unload foreclosed condos? The amount borrowed by the previous owner when the property was over-appraised? Condos are a liability. The seller was more than happy to rid themselves of a liability.

[jghorton]

It sounds like what you are dealing with is HOA fee delinquencies beyond the 15% Fannie/Freddie standard ... which most banks have adopted. Another case where this becomes an issue is where buyer/seller may agree on a 'short sale' that the bank has not fully authorized... or where the condo does not appraise at the agreed purchase price.

Having looked at a number of condos in that situation (Florida), it seems that the most obvious solution (not necessarily the best) is a cash purchase. If you are not in a position to do that, there are a number of second-tier lenders who will finance such mortgages (over 15% delinquent) at a 2-3% premium.

The issue is that delinquent HOA's tend to turn into short-sales and ultimately foreclosures ... all of which impact the overall financial health of a condominium and ultimately the property values.

Something you, as a potential buyer, should strongly consider is that HOA's have no other source for the necessary funds to pay bills and fund reserves ... than other (non-delinquent) owners. This means that the dues and assessments of other owners are likely to go up to pay the bills and property values will decrease as shorts/foreclosures hit the market. Additionally, you would do well to check-out the rental situation (minimum rental time, as well as actual number of renters at any given time). This will likewise drive HOA fees up and values down. (Condo's with a high ratio of delinquent HOA fees also typically have a high ratio of 'investor-owners' who are anxious to keep the property rented ... with little discretion about renters or overall impact on other owners).

The banks are not looking at the docs for the financial status of the condo, but, instead, to ensure that the docs do not stipulate how much of the delinquent HOA fees the bank must cover upon sale. The 'Condo disclosure' provided by the HOA is required to divulge the delinquency status along with other 'bank-critical' information.

You may feel that the bank is intruding on your personal life, but, consider this: The bank wants to make good loans ... and if they are unwilling to consider a mortgage on this property (assuming your personal financials and scores are in order) -- you might do well to reconsider your own interest in the property.