My association currently has a right to 1st refusal, making it impossible to sell to an FHA buyer!

Asked by Abby, Chicago, IL Thu Sep 25, 2008

Is there any way to get around this requirement? The association would probably make the change to our declaration, but is it true that we have to get all the mortgagees signatures to make an ammendment? If so, I don't see how we woudl ever make a change to our declaration.

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Santiago Val…, Agent, Chicago, IL
Tue Oct 28, 2008
We just had this happen on a place we were selling, the owners (my sellers) were very hands on and collected the necessary signatures to ammend the by-laws, door to door, etc. Their association attorney was able to get the documents recorded within a day of the signature collection. The process took about a week in a 34 unit building, credit to the owners and a very capable attorney. This was the first FHA closing in the building, this closing would probably not have happened if the right of first refusal was still active. If you have any questions for your association, their association attorney was very helpful in this matter: Anthony Musilami from Musilami Law Offices (web site below). I hope this helps and good luck!
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Margie Smigel, Agent, Chicago, IL
Mon Oct 27, 2008
Do not might be possible to convince your neighbors to eliminate the right of first refusal from your declaration. It is important to have some support from a third party, however, so perhaps you should invite to a condo meeting a realtor and a lender who are both familiar with the neighborhood and FHA financing so that they can answer any of the concerns that your association might have. As the market gets tighter and the lending practices get more conservative, FHA might be the only option available to the buyers for your building. The right of first refusal is an archaic practice that refers to the original co-op model where the board got to decide whether or not they wanted a particular buyer to join their corporation. The fact is that condo associations rarely have the capacity to purchase a unit at the same price and conditions as a buyer. They can refuse to waive the right of 1st refusal, but unless the association shows up at the closing with the necessary funds, the buyer can go ahead and close on the transaction anyway. In these tough times, associations should be looking for ways to make their units more attractive to buyers...not less.
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Ken Dooley, Agent, Chicago, IL
Fri Sep 26, 2008
Hi Abby,

If your Association has the Right of first refusal then there's nothing you can do except change the Declaration which is difficult to accomplish even with a minimal number of units. In the event the unit is repossessed, FHA requires that there are no restrictions to selling the unit; Right of first refusal is a restriction and could derail a sale at a reduced price (association refuses to allow a sale due to a low price for a unit).
Bottom line is your unit cannot be purchased by an FHA buyer.

Good Luck, Ken.
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NonRealtor, , 23456
Thu Sep 25, 2008
The clause is in there to protect the value of all property owners. Maybe it was refused because FHA only put down 3.5%. They don't have any "skin in the game". They could end up a future foreclosure which will bring down the value of others in the association. Good Luck
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Jeffrey Kropp, Agent, Chicago, IL
Thu Sep 25, 2008
I am not sure how to accomplish it legally, but this clause is old and needs to be removed if anyone in the building is to sell their units (neither FHA or Fannie Mae will give a loan).

It could be a good time to look at all the association documents to remove other illegal clauses such as the right to refuse buyers with children.
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