Free Assumability and its accompanying issues for property owners, buyers and agents are increasing, particularly in Sun City. I have received frustrated comments from agents who sold properties in Sun City over the past couple of years. Their buyers who purchased their homes for cash and have recently attempted to obtain an FHA Reverse Mortgage, find out the Sun City Recreation Center governing documents contain a clause that violates the FHA Free Assumability Clause. This results in FHA Reverse Mortgage being unavailable to Sun City property owners.
WeMAR published an informative Free Assumability flyer in March designed to be used by agents, lenders and their clients. It explains the who, what, when, and where of Free Assumability.
The problem currently before brokers, agents, lenders, appraisers, owners and buyers is how do you know if Free Assumability is an issue and how will it impact you?
Sellers are tasked with offering their property with terms of sale they can honor. That means the seller must know the association’s governing documents limit their private property rights and how. In this case, the ability to qualify for an FHA purchase loan, FHA Refinance or FHA Reverse Mortgage. Seller’s must be able to properly instruct their real estate agent and broker on terms of sale. Without Sun City Recreation Center disclosing to their property owner members this known limitation, sellers cannot make their property offer of sale with terms they can honor.
Once in escrow, sellers are tasked with notifying the buyer of any issues of material importance and association disclosures. Sellers cannot make proper disclosure if they are not informed. The Association has a responsibility to inform their member owners of specific issues. Sun City Recreation Center has not.
During escrow, buyers are afforded a due diligence period. Sellers and Associations must disclose documents and information pertaining to Association rules, financials, lawsuits, meeting minutes and other issues. Currently, buyers in escrow are not being informed of the FHA loan product limitations by Sun City Recreation Center disclosure documents.
FHA is the largest Reverse Mortgage lender in our marketplace. Homeowners who purchase their home with cash or a conventional mortgage are not aware their ability to access a Reverse Mortgage maybe impossible.
The June 2018 Sun City Recreation Center Board of Directors meeting was the latest in a series of Board of Director meetings dating back to early 2016 in which Sun City homeowners voiced concerns when they were denied an FHA Reverse Mortgage. For many, an FHA Reverse Mortgage was part of their long-term retirement planning and being unable to obtain that loan meant selling their house and moving. I watched as yet again numerous Sun City property owners asked the Board of Directors to place this topic on the agenda for discussion. One gentleman articulated his frustration at trying for over a year to at least have a discussion. His ability to stay in his home was exhausted. He had sold his house and would leave a few days later. He stated he would not have purchased his home if he had known he could not access an FHA Reverse Mortgage.
WeMAR members who are agents, brokers and lenders have an increasing number of stories related to clients being forced to sell their homes because FHA Reverse Mortgage is not available in Sun City. One of the most the most recent stories involved a 98-year old gentleman.
Sun City is well aware of this issue but refuses to disclose to owners or buyers in escrow. For REALTORS® Sun City Recreation Center’s refusal to disclose this material fact of importance to owners and buyers is a true problem. Not only are transactions derailed upsetting buyers and sellers, but owners are upset when they find out they cannot access a required tool for their long-term retirement.
REALTORS® are placed at risk as their clients and the public do not realize REALTORS® are not the authors of the disclosure, nor can they be. REALTORS® are not members of the association and therefore have no way of knowing what the private association has or has not written in their governing documents. REALTORS® rely on their clients and Sun City Recreation Center for proper disclosure.
WeMAR urges Sun City Recreation Center and other associations whose governing document language limits property rights, owner’s ability to access common financial tools, and other material facts of concern in a property owner or buyer’s decision making, to disclose these issues to property owners and buyers in escrow. A blog post is not sufficient disclosure.
Associations have a duty to make accurate disclosure on behalf of their member property owner. Failure to disclose important information places these property owners in jeopardy after close of escrow.
Arizona Planned Communities law may be accessed on Arizona State website.