Financing in 67207>Question Details

Jenn000, Home Buyer in 67207

Will right of first refusal stop my loan?

Asked by Jenn000, 67207 Fri Sep 9, 2011

I just put an offer in on a condo and have a conventional loan lined up with plans to close on Oct 17 if the offer is accepted. My realtor works closely with my lender and when I was signed the contract she said that if it came up that the HOA had right of first refusal then my lender couldn't go through on the loan. Has any one had any problems with this on a conventional loan? I have searched the internet and only see things about FHA loans. I'm doing 95% conventional loan, putting 5% down. There is a section about right of refusal in the hoa rules and regulations but it lists multiple clauses that get around there right of first refusal including information about if the buyer understands the payments to the hoa and when they due amoung other things. This is my dream home, am I going to lose it over this?

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Jenn - from my experience, the right answer is "definitely - maybe". It depends on which investor the lender (your bank) is using. Investors are who provide the money to your bank to loan the money to you. They are "behind the scenes" and you and I never have direct contact with them, but they are the ones that control the outcome. If they have loaned on that particular development in the past and it is on their "approved" list, you may have no problem at all. On the other hand, if it is not on their approved list, it is an uphill battle for your lender to gather all the information about the HOA to reassure the investors that this loan on THIS condo is a good risk.

Issues that matter to the investors, from what I learned on a recent transaction similar to yours, is whether or not the HOA and Condo Association have adequate insurance, and whether or not they have adequate financial reserves to back their obligations under the Covenants and Restrictions. The place my buyer was trying to buy was in an association that had recently suffered a serious fire in one wing, and three or four units had been destroyed. OK, that's what insurance is supposed to take care of, right?

ONLY if you are ADEQUATELY insured - and this Condo Association wasn't - that means no benefits or significantly reduced benefits. The only way they could rebuild was to make a Special Assessment of all the rest of the owners, with a requirement that it be paid within the next 60 days.

In that situation, if my buyer had already been an owner there you should think about where the bank would end up if 1) her unit had been destroyed (the bank's collateral), or 2) she had been a recipient of the Special Assessment that she couldn't afford, so she decides to sell. Now she is trying to sell a unit at an increased price to cover the assessment due. Nobody would buy into that mess, so her bank would be left holding a piece of collateral that had significantly DEPRECIATED in value.

I got a real lesson on that one - my lady decided she really did want to buy if there was any way, so her lender was able to put it together - BUT - she had to put 20% down, and they were able to hold it "in house".

It may hard to believe this, but your lender (and their investors) are really trying to protect YOU by being so cautious. They know all the issues that have developed with these types of loans, and how both they and their borrowers come out losing. If they ultimately say NO - think twice before you proceed trying to figure out how to hold the deal together.

Best of Luck!
2 votes Thank Flag Link Fri Sep 9, 2011
I live in NY and many of the condominiums have right of first refusal. I have never seen a lender unwilling to do the mortgage if the condo association waivers there right. The only problem is that closing takes longer since most boards meet only once a month.
0 votes Thank Flag Link Fri Sep 9, 2011
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