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Profile picture for Fjavaherchi

Lender won't fund loan due to HOA lawsuit

Hi all,

Our conforming loan for a condo in Southern California was just about to be going for docs and close escrow when the lender backed out.  There is a civil lawsuit against the HOA for defamation of all things and the lender won't fund loan. They are now asking for the attorney of the HOA in this lawsuit to write a letter explaining the maximum exposure in this lawsuit.  Is this common? To me the lawsuit seems arbitrary and has nothing to do with structure or living conditions. But then I did a search and found out that no other homes have been closed in a community of 300 for 5 months.  What are my options as a seller? 
  • August 25 2014 - Aliso Viejo
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Answers (14)

I'm not sure if it's allowed, but if you post the project name and location I could check to see if it is approved with us.  I'm sure other lenders here have a similar list of already approved condo projects.

Defamation?  How can a condo defame you?  
  • June 12
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One option is to sell the property on terms.  You and the buyer would work directly with one another as opposed to going through the bank.  Your terms could reflect the bank terms, for example:

You guys agree on a price, down payment and monthly payment

Payment goes to you to go towards your existing financing - and any left over you keep for positive cash flow

And you guys agree on a term by which time the buyer will get his own financing - likely once the litigation is cleared

Paul Anthony Real Estate



  • June 06
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Profile picture for Grant Gerhart
Fjavaherchi,

You're going to have to find a buyer with all cash. There are some Lenders that will finance, but the terms aren't going to be very favorable. I hope they get this lawsuit done with quickly, it will help everyone in your situation.
  • November 11 2014
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Thanks for the mention Doyle.  You have a few options.  Option 1.  a portfolio program that allows all types of litigation.  It requires 20% down for an owner occupied buyer and 25% down for an investor.  You will pay about .375% more in rate for a 30 year loan as a premium.  Option 2.  A no HOA doc loan that does not require an HOA questionnaire.  This must be an owner occupied loan with 20% down.  Feel free to contact me for more detailed information on both of these.  Good luck.
  • September 03 2014
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Many HOA's have pending lawsuits. Defamation of character what against a Board Member or is it an owner slap suit for some emotional cause? The Master Policy should have Fidellity coverage if is about a Board Member. An attorney opinion letter would need to state that the lawsuit is frivolous, minor and under a small dollar amount. Attorney probably won't write that, they will say you never know with a jury.
Case access here: http://www.occourts.org/online-services/case-access/
Sounds like lender is a bank with overlays. Look up on the court website (it's public record you can see the whole case) is it filed for under $25000? Has HOA insurance paid for attorney defense?
Many lenders can get around and over this. I can or can recommend some.
Many lenders can loan with lawsuits or low owner occupancy numbers (called non warrantable)
Don't allow buyer to get spooked - have your agent ask they double apply with a lender who
can close the deal. Do it quickly.
Hey rates dipped today maybe there is a benefit to offer the buyer by switching?

Options as Seller: I see in Orange County most listing agents make a buyer cross qualify with own lender that they know can close. This would have avoided glitch. I ask before I even start on condos about lawsuits and occupancy. Here in OC only 7 complexes do not have pending lawsuits of some sort. One is in 9th district court of appeals since 2008.  Anyone can sue about anything.

  • August 27 2014
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As a seller you are in a tricky situation because you cannot force the buyer to use another lender.  You are really going to have to rely on your agent to work well with the buyer's agent to help them find a solution, and then try and be flexible with the buyer so you all cross the finish line together.  I would prepare for the fact this is going to take a little longer before you close.  Your buyer needs to shop around for a lender that can approve with the litigation.  It's possible, just more difficult.  If this falls out and you end up needing a new buyer, look for buyers with higher cash down (20% or more) or cash offers...those will be easiest for you to close.  Also make sure to disclose upfront so your new buyer has all the info from the start to make sure they can close with a loan that is ok with the litigation.  Best of luck to you!
  • August 26 2014
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Profile picture for CA Direct Lending
Good answer, Brookstone.
  • August 26 2014
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Profile picture for aracz
Hi,

Have you tried to see if there are lenders in the area that lend on complexes in litigation?

Kind regards,

Arpad

 
  • August 26 2014
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Profile picture for BrutallyHonest
As a buyer you should want to know the answer to what is the maximum exposure of the HOA in the law suit!  If the HOA loses the litigation and has to pay settlement.  Who do you think ultimately will pay the settlement?
  • August 26 2014
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Profile picture for Brookstone Mortgage
I don't know why people are saying you need a special lender, you don't. This is straight forward, Fannie Mae conforming. The underwriter may just be over cautious but this falls within FNMA guidelines. 

Here are the actual guidelines.

Ineligible Project Types:
  • August 26 2014
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there area  few specialty place that lend on this type of situation
 
Universal Capital Mortgage is a Top Originator of Condominium Loans with pending HOA litigation in California.  As the referral choice of many of the states preeminent Builder Defect Attorneys, Universal Capital Mortgage can provide loans in most condominium developments regardless of the type of litigation.

rates tend to be about .375-.500% higher and 20% down... check with the lender for underwriting guidelines...

all the best... thumbs up if you like... we work hard for your business.
  • August 26 2014
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Profile picture for Brookstone Mortgage
As a seller, you really don't have many options since you can't direct the borrowers on where to get financing. Assuming you meet the following:

"Condominiums with Litigation allowed when:
    Formal HOA established
    Must meet all FNMA project eligibility criteria
    Pending Litigation is limited only to minor matters and:
    Has no impact on the safety, structural soundness, habitability, or functional use of the project"

... then it shouldn't be a problem for a borrower to be approved. The borrowers just need to shop around to find the right lender.
  • August 25 2014
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Hello,
    What you need is a lender that can provide a non-warrantable condo solution.  Depending on the buyer's qualifications (credit, assets, income, downpayment, etc.), it IS possible that you can sell your home.  No promises but certainly worth looking in to.

Matt
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  • August 25 2014
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Profile picture for CA Direct Lending
Litigation is too common these days and FNMA finds that any litigation renders the subject property ineligible for purchase.  The only option, I believe, you have as a seller is to use a portfolio lender who has no problem with this type of litigation. 

I'm not sure that even with a letter from the attorney explaining the maximum exposure in the lawsuit will solve the issue. 
  • August 25 2014
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