Ishita, Home Buyer in Santa Clara County, CA

Which mortgage lenders do not ask for HOA certification ?

Asked by Ishita, Santa Clara County, CA Wed Aug 10, 2011

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Burl.lagrone, Home Buyer, New York, NY
Sat Oct 8, 2016
Savvy discussion , Speaking of which , you want a EEOC Intake Questionnaire , my kids saw a blank document here
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John Dutra, , Fremont, CA
Thu Aug 11, 2011

A good question with some equally good responses. I particularily liked Grace's thoroughness. To add to this;

There are still a couple of lenders out there that do not seek a certification, but all will check for red flags, the notices that go out showing if a complex is in the middle of a lawsuit.

The reason that lenders even care (as should you) is that if a complex is being threatened or is in the middle of a lawsuit, there is no way to tell the financial impact once the lawsuit is settled. Some lawsuits can be small and specific in nature, but many can impact the complex with thousands of dollars in repairs or settlement costs.

Those costs not covered by reserves most often end up going out to the owners in the form of an assessment as well as an increase in the HOA fee. I have seen many assessments in the $4,000 to $8,000 range (per owner!) for balcony repair (dry rot, water damage) as well as common area upgrades (for safety), earthquake retrofit and entire roof replacement. It is this unknown financial impact that does not allow banks to accurately qualify the buyer. Buyers are qualified based on current monthly debt payments plus the entire house payment - PITI (Principal, Interest, Taxes and Insurance) as well as the HOA.

These lawsuits are common and here is why: Most residential developments, including townhouses and condominiums, are covered by a 10 year warranty by the developer. in the 9th year (or thereabouts), attorneys will go the HOA and ask for permission to do a "tear-down" inspection of the complex. If the HOA declines, then the attorney makes it clear that if something does then pop up later on, they will be sued. Most HOA's comply.

What can happen next is that the attorney hires a firm to dissasemble parts of the complex actually looking for issues within, such as structure construction, foundation, plumbing - even nail patterns are inspected to find defects or faults. Something is inevitably found and the complex is sued.

State Senator John Burton supported a bill - SB 800, that now allows most complexes to work to correct the issue without having to go to court over it. It sets standards and mediation for most complex issues. You can find a copy with this link:…

Bottom line - even though it may be a nice complex, understanding the final impact of any lawsuit as it pertains to the complex (the bottom line being the owner of course) should be critical to how you make your decision to purchase.

Hope this helps my friend.
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Andrea Wince…, Agent, Milpitas, CA
Thu Aug 11, 2011
There are a few lenders who will loan without HOA Certification, however, I would be concerned what the litigation is about. If the legal trouble is related to mismanaged reserve funding, or lack thereof, or another issue that might take months to get resolved, the homeowners could end up paying for attorneys and/or court costs through a Special Assessment. Investigate before you buy !
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Ishita, Home Buyer, Santa Clara County, CA
Thu Aug 11, 2011
Thank you Nina ! Will call you on Thursday .

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Nina Daruwal…, Agent, Cupertino, CA
Thu Aug 11, 2011
Hi Ishita,

My Lender has an Investor who can loan on a Property UPTO $417K only if it is for Personal Property (personal use/owner occupied), NOT as an Investment Property.... There are Not many lenders out there who will lend on a Complex that has Litigation on it. Even then, the Lender would Investigate the Nature of the Litigation then Determine whether they would Loan on it..... Please do get in touch with me if you want to talk in detail about this,
All the Best,
Nina Daruwalla
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Ishita, Home Buyer, Santa Clara County, CA
Thu Aug 11, 2011
Hi Grace,

This townhouse I am interested is in litigation and that is why making this query. All the other units in this development that were in litigation have successfully closed loans and therefore assuming that there are lenders out there who do not ask for HOA certification ..

Thanks so much for a detailed reply !
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Grace Morioka, Agent, San Jose, CA
Thu Aug 11, 2011
Hi Ishita and thanks for your post.

Unfortunately, because so many homeowners associations are facing tough times with distressed properties, foreclosures and bad past financial or maintenance decisions that are now causing huge problems, almost any lender willing to a do a loan in an HOA will absolutely require that the HOA complete and provide them with an HOA certification form.

Obviously, you can minimize the possibility of losing a loan due to poor "stats" from the HOA by carefully reviewing the HOA documents prior to making an offer. Of special interest to lenders and which figures prominently on all HOA certifications are the following:

1. Is the homeowners association currently in litigation, contemplating litigation or threatened by or from any lawsuit. (If the answer is yes, then, the lender will not agree to lend here--run run run to another property)
2. How many non-resident owners own homes at the community. (The key here is NOT to have high rental rates, but to keep the number in the about 40 percent or lower range)
3. How many owners are delinquent in the payment of their dues and how much is the total sum of the delinquent dues? (Look to the HOA's balance sheet to see the total amount due--noted as "Accounts Receivable" or "Assess Receivable" and then compare this with the amount of dues billed monthly on the income statement. If the delinquency is high, then the lender will not be willing to make a loan here. Also if the number of delinquent owners equals 15 percent or more, then the lender will also be less likely to lend)
4, What is the Association's current reserves and is it enough to prevent deferred maintenance? (Again, you can figure out the answer to this question by looking at the budget to see how much money is the reserve compared with how much SHOULD BE in the reserve. The HOA must express this number as a percentage, and you don't want to go below about 70 percent funded compared with the reserve analysis)

Best of all, Ishita, work with a Realtor who really knows and works in the HOA field. Good luck!!

Grace Morioka, SRES
Area Pro Realty-People's Choice
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