Financing in Playa Del Rey>Question Details

Rm, Home Buyer in Playa del Rey, CA

How does an HOA in litigation impact approval of an FHA loan?

Asked by Rm, Playa del Rey, CA Sun Jun 15, 2008

We are in escrow on a condo and have applied for an FHA loan to purchase. The complex is not on the FHA approved properties list but I'm told that isn't unusual. Spot approvals are often given. But the underwriter says they found reference in the HOA meeting minutes (Feb 2008) to something about a tenant of a homeowner having sued the HOA for an alleged premises liability. The minutes have no detail other than it was forwarded to the HOA insurance carrier. I'm told this means we can't get a spot approval on the premise. We may not get the loan because of this. Is this common? And what do we do to resolve the matter? I assume we call the HOA management firm and find out what is the status of the law suit, but beyond that I have no clue. Any suggestions would be helpful.

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1 vote Thank Flag Link Sun Jun 15, 2008
Just an update on the situation... situation is resolved and we are set to close July 1 or 2 (delayed from June 30, but I'm not complaining because at least we are closing). We took a number of steps to get additional information: contacted the HOA management firm, got the contact info for the attorneys for the HOA, got more information from the attorneys and got the HOA's insurance company's contact info. In the end what was most helpful was this: we had the insurance agent for the HOA draft a statement of opinion regarding the suit (legitimacy; if current coverage would be sufficient for the claim; etc.) and this was then submitted to the FHA underwriter. Because the claim would be completely covered by insurance if the outcome is that the HOA is found to be responsible (and apparently the total financial impact was considered low), we were given an allowance for a spot approval. So it looks like we'll have a new home in a few days. After speaking with the seller directly we've come to find she had no idea this was going on and she didn't understand that she should have been disclosing it. I get the impression her agent likely told her it was her responsibility to either know or find these things out for purposes of disclosure, but she still doesn't have a firm grasp of why this had any impact on the sale at all. Very, very nice woman, but very overwhelmed by a difficult sales process.
0 votes Thank Flag Link Sun Jun 29, 2008
If no luck in getting a FHA spot approval then you will need to start looking for alternative conventional financing if you still want to purchase this particular unit. If you need those sources then feel free to contact me.

Good luck to you.
0 votes Thank Flag Link Tue Jun 17, 2008
Thanks Julia. While seeking the advice of an attorney may be something for down the road, at present I think I'll consider that a last resort measure and instead focus on something more positive and hopefully fruitful: which is to try to remove roadblocks and make the deal work. I plan to contact the management firm for the HOA and find out if the litigation against the HOA has been settled. If it has been, then discussions with an attorney are unnecessary. I'll let you know how it works out.
0 votes Thank Flag Link Sun Jun 15, 2008
I went to the link Jim Johnson provided (Thanks!) and found confirmation that the FHA folks won't allow a spot approval if there is any pending litigation against the HOA. OK. So I suppose the next question I have is, if you were in my shoes, who would you be calling to get more info about the litigation? For all I know, it might have been settled since no mention was made of it in the March or April minutes.

Julia, I doubt the seller knew of the litigation in order to disclose it. It was literally two sentences buried in 2 years worth of meeting minutes. That stated, it is something she probably *should* have known about. Knowing up front would have enabled us to be better prepared how to answer FHA (if any answer can be given that will matter). Either that or it might have allowed us to avoid the expense of the appraisal, inspections, etc. and it would have meant the seller could have moved on with a more appropriate buyer who could do conventional instead of FHA. Hindsight being the exact science that it is...
0 votes Thank Flag Link Sun Jun 15, 2008
Hello RM, You may not have a choice if a spot approval cannot be obtained through FHA. Even if you went conventional, underwriters may have problem with litigation, and will want to know more. As you buyer, you should want to know more also as to the status of the lawsuit and its future impact on HOA finances, if any. And, a current lawsuit is something that should be disclosed on the seller's TDS, assuming the seller knows of it since it was in the minutes.
0 votes Thank Flag Link Sun Jun 15, 2008
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