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Loan application denied due to HOA litigation - my options?

I recently applied for a loan refinance through a mortgage broker (Ratecomb) I found on Zillow over a month ago. Just yesterday I was told that the lender denied my loan due to HOA litigation.
Timeline of Events:
June 15 - Loan application submitted
July 2 - Message from broker - "Congratulation on your approval! Your approval is clean and we don't need anything from you at this point. We are working on our internal conditions"
July 24 - Message from broker - "Loan application denied by lender due to HOA litigation"
Facts:
1. I have a 800+ credit rating and good financial standing
2. I was charged $530 for a credit report upfront
3. My appraisal report clearly states that there is not HOA litigation on my property
4. There is an outstanding litigation on one of the other 6 sub-divisions which is part of the same HOA
5. It took 39 days to for someone to tell me that my loan application has been denied because of the above
So, essentially due to no fault of mine, I'm left with a $530 charge on my credit card and a denied loan application. What should I do?
  • July 25 2012 - Santa Clara
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Answers (29)

[Company name removed by Zillow Moderators] is one of the ONLY companies still doing home loan financing for condos with Litigation and Low Owner Occupancy issues.  We close them all day, every day and have been for several years.

Sellers should know that the sale of their litigation-affected condo is no longer limited to finding the "needle-in-a-haystack" buyer who is willing to buy their condo AND who has all cash.  Financing is available.

20% Down Payment Owner Occupied
25% Down Payment 2nd Home

[Contact information removed by Zillow moderators, please see our good neighbor policy]
  • June 23
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Profile picture for hsin huang68
I was with New American Funding, No matter how many times I upload, fax, and send the current valid HOA insurance to them, so as the HOA management and insurance agent send them. they always said didn't receive it and going to charge me 31,000.00 per year for the whole complex HOA insurance. So I am really tire of deal with that as home owner, too much trouble, is there a network they can just go check themself, instead endlessly harrase and threaten Condo owner, Now I list my condo, and never will want to be a owner again.
  • June 20
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Profile picture for CA Direct Lending
That's the best post I've read all day.
  • May 15 2014
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Profile picture for shapiroamg
Probably the best thing to do is to look at the date the question was asked.
  • May 15 2014
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hi, its up to the lender to decide to lend or not once it performs its analysis...some lenders will lend on condos with litigation but it depends on the specifics of the litigation...$Good Luck$ Flavio Tejada
  • May 15 2014
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Profile picture for user09481811
A good resource for HOA related topics - Check out www.hoamemberservices.com
  • May 13 2014
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You should look into your Master Deed or get a lawyer to do it. We are going through a similar situation so I read my Master Deed and found that the Associate never took a vote of the home owners to include the HOA in litigation. We got a lawyer, and the HOA is about to be thrown out of the litigation which will enable owners to refinance, sell, etc.
  • March 01 2014
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Loans on condos and sfr's with pending HOA litigation are readily avaialble.  Just google Hoa Litigation Condo Loans and you will find info.  We funded over 10 mil worth of them last year. 
  • October 05 2013
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As an appraiser, we have to call the HOA and find out if there is any litigation against the HOA from anyone. Then we state it in the appraisal. EVERY lender requires this  This appies to both refi-s and purchase loans. If we don't state it, they kick it back until we find out the info.

But at this point, its in underwriting that I suppose the decision is made whether to fund or not.

Remember its the lenders money and they can really do whatever they want with it.....
  • July 30 2013
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Profile picture for Brookstone Mortgage
user0752623,

You can find financing for your situation. Please post what state you are in for assistance.
  • July 30 2013
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Profile picture for user0752623
How about this ... the HOA is suing the builder, supposedly all repairs were made and paid for and the HOA is suing for punitive damages, has over $1m in reserve and the attorney is on contingency. Three days before closing the bank (think of a bank with a fraction) denies the loan because the HOA is suing another company. The loan office is blaming Freddie and Fannie. Is this accurate???
  • July 30 2013
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Loans on condos and sfr's with pending HOA litigation are readily avaialble.  Just google Hoa Litigation Condo Loans and you will find info.  We funded over 10 mil worth of them last year. 

  • February 04 2013
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Lenders are concerned that possible litigation could drain the homeowners association of assets and therefore burden the homeowners who belong to the association. If the HOA is unable to pay off a judgment (either by reserves or insurance) the individual members of the association would have liens placed against their properties.

When you have a home that is not part of a HOA, you can end up in a similar situation (having liens against the property). Contractors and their subs can attach liens against the home and this could impair the ability to both sell and refinance.

My guess is it's fairly unusual for an individual to sue the HOA under these circumstances. Often these lawsuits are more related to structural defects, defective sheathing / siding and defective windows.
  • February 03 2013
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Profile picture for user04473408
I am in a similar situation:

I am refinancing my single family home, which has an HOA.  One of the property owners, who lives several streets away from my property has filed a lawsuit, claiming intentional infliction of emotional distress and other non-construction related issues.

My refi applicaton was preliminary denied due to the litigation but is currently under reveiw since I submittedto the lender proof of HOA liability insurance and a map of neighborhood which shows the great distance between my house and the suing party.

My questions are: does refusal to refi due to HOA litigation apply to SFH's as well as condo? Is this is a lender-imposed or based on some federal law? what are my options?

Thanks.
  • February 03 2013
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We originate loans for condos with litigation in California only.  80% max ltv and loan amounts to 625k.  Rates are approximately 3.875% for a 30 year loan with a 1pt loan origination fee.  All litigation acceptable. Call for more details, or log on to [deleted by Zillow moderator. Please see our Good Neighbor Policy for posting guidelines]  Thanks
  • January 15 2013
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Profile picture for user1800448
i understand there is risk.  But it makes me wonder why they took the loan to begin with if the context hasnt changed from when they signed me up.  Doesnt that send mixed messages? If your logic is: Litigation stops the loan we already took that was in litigation.......it doesnt add up.  It means the original loan right now is still in litigation and you as a lender dont have the opportunity to take more CASH into your pocket for a refinance as I plan on paying down a big chunk at the same time.  I am not schooled in all aspects of this business, and do not spend my time complaining. I will find a way around this. There are other lenders who will take the loan while its in litigation, it will just not be such a sweet deal (according to my broker/agent friend.)  Also working with another lender offline on my own who will possibly look at the litigation I got directly from our Law Office representing my HOA to see if there is a waiver they can make.  They want 30% equity vs. 20% of some other lenders though, which means I would be dropping about 31k to get there, but the rate is 3.1% GFE right now. Which is better than most. I just dont know if there is recourse to get refunded for the condo cert and appraisal I paid for that are now useless.  Is that even possible? I have it documented over email with the Loan Officer that "This will not be an issue" when I directly asked about this scenerio and stated I didnt want to pay for it if I would be denied. Now I am denied......and nobody is answering my questions.  What a bad week
  • December 08 2012
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Profile picture for Ben Ganje
This is a constant item that can haunt the refi or purchase process for condo buyers.  Sometimes a property management company can negate this with a letter stating that while the HOA is in litigation the HOA reserves are able to cover the costs involved in the suit.  Most of the time tough the ligitation will compromise any sort of progress.  The solution?

Its best to get a condo resale disclosure certificate from the property management company who handles the building to check and see if there is any pending litigation.  If you are a [hotlink deleted by Zillow moderator. Please see our Good Neighbor Policy for posting guidelines] this could extinguish your search in that particular building, if you are an owner trying to refi reach out to the HOA president to find out the timeline of the litigation.
  • December 08 2012
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Think about why a lender would not lend with an hoa in litigation. What risk exists and what are the potential costs if they lose the litigation? Lenders do not like playing the lottery when it comes too risk!
  • December 08 2012
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Profile picture for user1800448
So I just went thru a similar situation.  2 years ago I got a loan with a lender while my HOA was in litigation with the builder without any problems.  I started a refinance effort last month with them and they said the litigation wouldnt be an issue.  I have it documented in emails because I called other lenders before them and was told they wouldnt take the loan, and I didnt want to spend the money on an appraisal and condo questionaire if it wouldnt work.  

So I was approved for an appraisal and it came back this week 20k higher than what I paid for it in 2010.  Then they came back today and told me b/c the HOA was in litigation they denied my loan.  I have credit score over 800, a steady income, and equity in my property. Does anyone know a lender that will help?   I am so bitter that they gave me false expectations and said the litigation "wouldnt be an issue" made me drop $700 and now decided I wont be approved. My last 2 months have been completely focused on this refinance and it really stings.   Would be eternally grateful if anyone know a bank that would take it and get me a rate under 4% as my GFE with his Lender was 3.7%.   Also, is there a way for me to be refunded by these people for wasting my time and money? whatever happened to accountibility in this country, I have no idea.  
sorry for the bad grammar and misspellings, I am frustrated
 
  • December 07 2012
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Profile picture for Go Huskers
Ray apparently has options as do I if you want it. Do you want someone that can do condos in litigation?
  • July 25 2012
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Profile picture for varun75
Thanks for the responses. According to the lender, it was Fannie Mae that did not make an exception. Our housing community (Rivermark, in Santa Clara, California - 1100 homes) has 6 sub units and one of the sub-units is in litigation. My home is NOT part of that sub-division. The litigation is from the HOA to one of the builders (not the one that constructed our home) for a structural issue.

a) Can I confirm this information with Fannie Mae?
b) For the next attempt, should I be excluding any lenders that only go with Fannie-Mae backed loans?
  • July 25 2012
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Profile picture for CA Direct Lending
B of I Federal Bank and Golden One Credit Union don't care what type of litigation it is.  There are a few (very few) other lenders who will loan if the litigation involves cosmetic rather than structural issues.  
  • July 25 2012
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Also, for your next attempt I'd recommend having your loan underwritten subject to appraisal.  Meaning, no appraisal is done until after the condo litigation is signed off on and the loan is otherwise approved.   Then if you run into a problem you're out $0 - $50, instead of another $530.  It would be $0 with PNC.   Many lenders will not underwrite without an appraisal, but that is a personal choice, not a rule across the board.   In this type of a situation, we would be able to get the loan approved (or denied) prior to appraisal. 

If you'd like to reach out to me, please feel free to do so by clicking on my name.
  • July 25 2012
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I mostly agree with "Bri Gets."  I would just add that it depends on the type of litigation.  Some types we can work around and some types we can't.   And that is a matter that is subjective in nature.  Some lenders are denying all condos that have ANY type of litigation.  Typically exceptions can be made when the bank knows what the outcome is or what it is likely to be (presuming they don't find it gamebreaking).    Some lenders are saying no to ALL lititgation.    Unfortunately, your initial contact with a lender isn't the person that has final say on that.   It's all very case by case.  Off hand, I would be optimistic that your litigation situation is something that someone might be able to work with. 

$530 almost definitely included credit and appraisal.   If it was JUST for credit, that would most likely be something you could file a complaint about and get reimbursed eventually.
  • July 25 2012
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Profile picture for CA Direct Lending
Bank of Internet Federal Bank can do a condo in litigation as well as Golden One Credit Union.  You'll need a broker who is signed up with one of these lenders or you may be able to go to the credit union directly.  
  • July 25 2012
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Profile picture for varun75
The $530 charge upfront was for the appraisal, not the credit report
  • July 25 2012
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Profile picture for Go Huskers
"If there is pending litigation against your HOA, then nobody will be able to do the loan."

Again with the blanket statements. People really need to stop doing this. 

Repeat after me. I Brian Goetz cannot do this loan and am unaware of anyone that can, however, this does not mean that "NOBODY" can. 

Thank you!
  • July 25 2012
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1) doesn't matter what your credit score is. If there is pending litigation against your HOA, then nobody will be able to do the loan.
2) If you were charged $530 for a credit report, you got ripped off.   Are you sure it was not for the credit report AND the appraisal?
3) doesn't matter what the appraisal says.   The appraiser does not work for the HOA and did not have any knowledge of the litigation or failed to ask.   Doesn't change the fact that there is litigation.   Just because the appraiser made a mistake, doesn't mean that the lender will accept his word.
4) same HOA,,, end of story
5) Did you disclose the litigation to the loan officer at the time they took your application? If not, you are equally at fault for not doing your homework and losing out on your $530.  

There is nothing you can do.   Wait until the litigation is over and then try to refi. Your money is lost.  
  • July 25 2012
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Profile picture for Go Huskers
They would not know about the litigation until a condo questionnaire was completed by your HOA. HOAs are notoriously difficult to deal with especially when they are in litigation. It's not litigation on YOUR property that is the issue.  The loan officer may or may not have screwed up, most good ones request the info from the HOA immediately but doing it as a funding condition isn't unheard of. 

What you should do is find a lender that has resources to fund your loan with the litigation. I happen to know someone if you are interested.
  • July 25 2012
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