FHA loan denials in retirement communities and some other communities are on the rise. Buyers, sellers, homeowners attempting FHA re-finances or FHA reverse mortgages are affected.
In December 2016, I wrote a blog post addressing this issue and a letter to community managers I could identify as being affected. I was hoping the community managers would begin working on amending their community documents so that the FHA free assumability clause was no longer an issue, but instead they have decided to ignore the problem.
I was also hoping real estate licensees would begin to spread the word as they worked with clients and potential clients, telling them of the free assumability clause issue.
I was hoping that as residents of these communities became aware of the issue, they would bring it to the attention of the community board and management.
So far, nothing.
Truthfully, this issue is solvable at the local level. The crux of the problem is that FHA underwriting guidelines dictate that restrictions must automatically terminate should title transfer to FHA through foreclose, deed-in-lieu of foreclosure, or if the mortgage is assigned to the Secretary. This is the same clause that causes issues with solar leases.
The fix is simple, the governing body can choose to amend the community by-laws. Inserting a phrase that allows restrictions to automatically terminate upon foreclosure, deed-in-lieu of foreclosure or assignment of the mortgage to the HUD Secretary would alleviate this problem. The amendment could be specific to FHA. It doesn’t have to include other types of loans, mortgages or financing.
Although FHA has told us they are working on the issue, it is unlikely they will address it anytime soon.
My suggestion to property owners in these communities; educate your managing staff, your governing board and demand a solution. REALTORS® working in affected communities may want to encourage their clients to make inquiries of the community to determine if the community will be addressing the issue and if so, how.
In the end, residents in the affected communities have the ability to solve the problem. REALTORS® wishing to discuss the issue may phone or email me.