HOA Woes (real estate, HOA fees, condo)

[halloween1]

We are in the process of selling our 1-bedroom condo and had an offer by a buyer using an FHA loan. The buyer's mortgage representative did a spot FHA appraisal and was denied because our HOA had taken out a $100K+ home improvement loan for new paint, new lighting and other additional improvements. The loan will not be repaid for another 5 years. The FHA denied the loan because the HOA only has approximately $50K in reserves, thus the HOA's debt to income ratio is negative and it appears that the HOA is running in a deficit, even with the monthly HOA dues coming in. Our HOA insists we are not running in a deficit. Either way we cannot accept a buyer who is using an FHA loan, which is what many buyers are using in this market.

My question is - is taking out a large loan like this standard practice for HOA's or is this unusual? Several people have said this is normal and several people have told me that typically HOA's make assessments when they want to do large projects. Please advise as we feel the HOA has tied our hands behind our backs with respect to ever selling our condo.

Thank you in advance for your comments!

[Captain Bill]

If they need the money for repairs such as this, they actually should have budgeted for it in the reserves account or the operating account long before.

However, when money is needed for work and they don't have it, then there is the option to borrow the money, which the HOA can do without homeowner approval, or ask the homeowners to approve a special assessment. Getting a special assessement approved would be very difficult because it can take up to 75% or 90% (depending on what the documents say) of the members to vote and approve the assessment.

The HOA must give you a copy of the financials if you request them (you pay the copy cost) and you can ask the FHA to look them over to see if they are actually running a deficit.

[Master Shake]

Never heard of anything like this. So basically, the HOA has in effect created a lien (via the loan) on every homeowner/property in your building? I didn't know something like this was even possible. If it is not a lien, why would the FHA be concerned with what the HOA is doing financially? Just curious...

[halloween1]

Thank you so much for your responses. A "lien" is exactly what it sounds like to us. We did request all of the finacials for the past couple of years to try and establish a pattern of fiscal responsibility on the part of our HOA and we sent that to our buyer's underwriter. Our real estate agent was told by the buyer's underwriter that the FHA wouldn't approve it because, on paper, the HOA is running in a deficit.

We are really frustrated. Our condo is gated, has a garage and located in a nice part of central PHX but we fear we may never sell it because we can't get the FHA approval. Since this fell through, we've had 2 other offers but both of them could only do FHA financing and in this market & in our price-point ($133k), our realtor has told us, we may only get FHA offers, which we cannot accept. Do we have any recourse with our HOA board?

Thank you again for your comments- we GREATLY appreciate any guidance.

[Greatday]

Originally Posted by halloween1

We are in the process of selling our 1-bedroom condo and had an offer by a buyer using an FHA loan. The buyer's mortgage representative did a spot FHA appraisal and was denied because our HOA had taken out a $100K+ home improvement loan for new paint, new lighting and other additional improvements. The loan will not be repaid for another 5 years. The FHA denied the loan because the HOA only has approximately $50K in reserves, thus the HOA's debt to income ratio is negative and it appears that the HOA is running in a deficit, even with the monthly HOA dues coming in. Our HOA insists we are not running in a deficit. Either way we cannot accept a buyer who is using an FHA loan, which is what many buyers are using in this market.

My question is - is taking out a large loan like this standard practice for HOA's or is this unusual? Several people have said this is normal and several people have told me that typically HOA's make assessments when they want to do large projects. Please advise as we feel the HOA has tied our hands behind our backs with respect to ever selling our condo.

Thank you in advance for your comments!

The lack of reserves is of concern. The HOA should have planned for these repairs - and, if there is insufficent income to cover current debts, FHA / HUD is concerned about the future value of a property with an HOA possibly filing bankruptcy.

[Captain Bill]

Originally Posted by halloween1

... Do we have any recourse with our HOA board? ...

You don't have recourse, but you have the opportunity to go to the next board meeting (you can attend all meetings) and ask questions. It is always a good idea to attend all meetings because you will know what is happening all the time that way.

First, get the mortgage broker to give a written explanation of why the loan was turned down. That way when you go to the board you will have something in writing to verify what you're saying.

Then get the HOA financials and study them.
Also, study the CC&R's.
Then write a list of questions. Call the property manager and ask to be placed on the agenda to ask your questions.

I recommend getting to the meeting a few minutes early and introduce yourself to the board members, because they are your neighbors, and just get to know them.

Do not go in with a combative posture. Go in with a friendly neighbor/community member who has some serious questions attitude.

When they give you the floor, thank them for allowing you to be heard, and thank them for the (volunteer) work that they do for the community.

Explain the situation with your not being able to get a loan, and state that this concerns you.

Then ask your questions, in a very business like manner, and listen closely to the answers.

One of the questions should be, is your property being used as collateral. Prior to asking that question, I would study the CC&R's carefully to see if they permit your property to be used as collateral.

If they can and did use your property as collateral, that is an encumbrance, not a lein.

A lein is when a vendor or lender records a notice of debt not paid with the county recorder. If a contractor works on your house and you don't pay them, they can place a lein on your home. You cannot sell the home until the lein is removed.

I may be wrong but I don't think the HOA can use your property as collateral.

Typically in a condo or town home situation, you own your unit; and the walls in between are common with the adjacent unit. The HOA owns the common grounds, common fences, common pools, and anything of that nature which is for the use by all members of the HOA.

The monthly fees usually includes maintenance of the outside of the units and the yard in the HOA fees, but that does not constitute any ownership, and only owners can use a property as collateral, and all owners must sign.