Since mid-October 2018, there is and has been, a bit of confusion regarding Sun City, FHA loan products, PIF (Preservation and Improvement Fee) and Free Assumability.
There were two issues preventing FHA loan product in Sun City. The PIF fee (Preservation and Improvement Fee) rules required Sun City to have their Rec Center Asset Preservation Fee ($3,500) approved by HUD as a fee that directly benefited the property owner. That was done in early October 2018. You can read the letter from HUD to Sun City (Chris Herring) addressing only the PIF fee.
WeMAR never questioned the PIF fee. Our concern since 2016 has been the Free Assumability Clause of the HUD underwriting guidelines. WeMAR became concerned in the Fall of 2016 when FHA announced it would begin enforcement of the Free Assumability clause underwriting guidelines. We sent letters to Sun City and other associations we could easily identify as having governing documents that violated the Free Assumability Clause.
Sun City was able to get HUD approval of their condo PIF fees in July 2017. At that time, a WeMAR member who was a lender sent a request for clarification to HUD and received a note back confirming that although the PIF fee was approved, Sun City loans were still banned due to the Free Assumability clause. HUD remarked that any changes to the Free Assumability clause would appear in a Mortgagee Letter.
WeMAR does not recommend a community change or not change their governing documents. That is a decision best left to the association and its members. We simply want associations to discuss with their members the issue and disclose when the association documents preclude FHA loans to property owners and buyers in escrow. WeMAR has concerns regarding adequate disclosure to agents, brokers, appraisers, lenders and their clients.
This issue affects all age communities as well as 55+ communities.
In short, the Free Assumability Clause states HUD must be able to foreclose, perform a deed-in-lieu of foreclosure, or assign the mortgage to the Secretary without limitation or restriction. In March of 2018 HUD representatives visited WeMAR. They confirmed the Sun City governing documents as they are, preclude FHA loan products because the mandatory Recreation Center Asset Preservation Fee at change of title does not exempt HUD in foreclosure actions.
During the course of the past 2 years, Sun City has repeatedly denied there is a Free Assumability issue and has told its residents HUD Santa Ana is working on changing the policy. WeMAR wrote a letter to HUD earlier this year asking for clarification of the rulemaking authority.
There are several examples of FHA loan denials in Sun City over the past two years. Lenders, agents, and brokers have experienced this issue first hand. Rusty Bradshaw at the Sun City Independent has written several articles as has Reverse Mortgage Daily.
WeMAR has not posted any information on Sun City being eligible for FHA loan products because although the PIF was approved, we have not seen a lifting of the Free Assumability requirements. At this time, some of our lender members are attempting to write FHA loans (purchase, refi and reverse mortgage) in Sun City. We have other lender members who will not because of the Free Assumability concerns. There is confusion in the marketplace.
WeMAR sent a letter to HUD in October 2018 asking for clarification. We asked if the PIF ruling somehow lifted the Free Assumability requirement and we asked for clarification of mandatory fees at change of title with no exemption for lender foreclosure under Free Assumability.
I will post the response from HUD to our inquiry when we receive it, most likely late November or early December.
I have posted several articles on this issue since 2016. Below are some of the articles.
Free Assumability – Lack of Association Disclosure: A Concern for Agents, Owners & Buyers
FHA Free Assumability – Language Clears the Path to FHA Loans
WeMAR is hopeful associations will engage in conversation with their property owners and properly disclose to property owners and buyers in escrow when the governing documents preclude FHA loan products.