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If so you need to become aware of the Federal Housing Finance Agency's plan to prohibit Fannie Mae, Freddie Mac and other Federal Home Loan Banks from purchasing mortgages for properties in communities where the covenants contain transfer fees.

If you read the newspapers (or watch news on the internet) you already know that mortgage rates are lower than ever before.  Wouldn't it be great to refinance at 4.5% (3.8% for 15 year conventional loans)?  Think about how monthly savings would help your cash flow needs. For owners trying to sell properties, lower mortgage rates usually mean higher sales prices.  For those looking to buy a home, lower rates mean more buying power and/or more cash flow to meet other needs, such as community assessments.

In order to qualify for those low rates, the mortgage must be backed by a government or quasi-government entity.  FHA/VA loans have great rates and very low down payment requirements (usually 3%).  The government guarantees those loans so the lender is protected in the event of default.  Fannie Mae, Freddie Mac and other GSEs (government sponsored enterprises) buy loans from lenders - the lender is able to offer the low rate since it sells the loan (and the risk) to one of these entities.

The Federal Housing Financing Agency (FHFA) is a government agency created to regulate and oversee GSEs.  One of its primary purposes is to make sure the GSEs operate in a "safe and sound manner" - so it reviews business practices on the part of the GSEs.  It recently proposed a new regulation that, if adopted, would prohibit buying loans for properties in communities where the covenants contain a private transfer fee.  

What is a private transfer fee?  Well, it could be many things.  Community Associations Institute (CAI) defined this term as "any fee or payment required at time of sale of a property by a deed or covenant restriction."   Typical community association fees include:

• Screening/Background investigation fees;
• Estoppel fees;
• Capital Improvement assessments;
• Mandatory Country Club initiation fees and the like.

While the regulation is not intended to limit mortgages as a result of these types of fees, it could have that impact if adopted.  In fact, Florida law specifically excludes certain typical community association fees from the definition of transfer fees in Section 689.28, Florida Statutes. 

CAI has created a survey for community leaders and managers.  It will compile the results and use them in an attempt to convince FHFA not to limit mortgage options for properties in community associations.  If distressed owners cannot sell their units/lots/homes because buyers cannot obtain mortgages, community associations will continue to suffer.

Please take a look at this survey.  Click HERE for the Survey.

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A housing conference is taking place today in Washington, D.C., where industry leaders and government officials are discussing the future (if any) of Fannie Mae, Freddie Mac and other Government Sponsored Enterprises (GSE) that offer mortgages.

These entities (Fannie, Freddie, etc.) are backed by the U.S. government.  Government backing lowers lending costs which translates to lower mortgage rates for consumers.  In theory, lowering mortgage rates and providing consumers with more access to capital encourages home ownership, increases home values and supports thousands of industries with hundreds of thousands of employees.  Both Fannie and Freddie have been in conservatorship since 2008 and supporting cash-flow needs with a credit line from the U.S. government.    Now the government (and many industry experts) wants the private sector to play more of a part in home financing.

What does this mean for community associations?  It could mean several things: 

• It could mean that future home purchasers will have to fund a larger down payment.  If home or unit owners have more at stake in the property they will be more likely to take care of the property and less likely to default. 
• It could mean that the historically low mortgage rates will go up - making homes or condominium units less affordable.  Higher interest rates may prolong sales of abandoned properties. 
• It may mean that Fannie, Freddie and other GSEs will be required to dispose of properties acquired as a result of failed mortgages even at a loss - resulting in better bargains.  

Fannie Mae recently auctioned close to 100 South Florida properties.  Those properties were only offered to owner-occupants (individuals and families who plan to live in the homes), not investors, in an effort to stabilize neighborhoods severely impacted by foreclosures.

There are some obvious benefits to GSE financing and some obvious detriments.  One benefit is flexibility - government backing allows Fannie Mae to offer hardship relief to home/unit owners.  For example, Fannie has the ability to offer loan forbearance to mortgagors plagued with chinese drywall.   Skipping six (6) months of principal payments may be all that is needed for homeowners to catch up with other financial obligations (such as community assessments).

Community association leaders and members can take strategic actions to stabilize their own communities.  Community associations have the power to regulate use and occupancy of the properties, the level of maintenance and care required, and can even establish guidelines regarding the financial responsibilities of new members.  With a little planning, advice of counsel and other professionals and effort by board members, committee members and other volunteers - you can make your community better positioned in the future.

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Is your Association Leaving Money on the Table?

Bank foreclosures continue to be an impediment to collection of unpaid assessments in many communities.  Sure, after the 2010 legislation became effective, community associations are entitled to collect either 1% of the original mortgage debt or 12 months worth of assessments from the mortgagee (whichever is less), but what about the rest of the balance?  Does it disappear into thin air?

Because a bank foreclosure will usually directly impact the ability to successfully lien and foreclose, communities must be aware of other alternatives to collect unpaid assessments.

Strategic Defaults - According to Wikipedia:

A strategic default is the decision by a borrower to stop making payments (i.e. default) on a debt despite having the financial ability to make the payments.

While many owners who lose their units in foreclosure cannot pay, it is important to remember that a unit owner is personally liable for all unpaid assessments that are left when a bank forecloses.  The Association may seek to collect the balance on the account from the former owner.  More and more, people who do have assets make choices to abandon properties because there is no equity.  If there is a possibility that an owner has assets to satisfy a judgment, a community should consider taking action against a former member to collect those unpaid assessments.

Many associations are thinking short-term instead of long-term when they decide to forgo pursuing a money judgment for the balance between what a lender pays if it takes title as a result of foreclosure and the outstanding obligations on the account. Yes, there are costs involved. If the association doesn't have a lawsuit pending, it needs to file a lawsuit. There are attorneys fees, filing fees, costs associated with service of process, etc. If the association already has its lawsuit pending, most of those costs have already been absorbed - so why not wait for the bank to foreclose (and pay its statutory obligation), then continue to pursue the balance against the former owner? A judgment is recorded in the county and with the State's registry; it is initially valid for 10 years and can be renewed for another 10 years. During that time if the debtor desires to buy another property, obtain financing for purchase of a vehicle, college, etc., the judgment will appear.

While the debtor/former owner may not have sufficient cash-flow right now, who knows what the future will bring? If the debtor has significant assets in another state, the association can even take the extra step of domesticating the judgment in another state and pursue collection efforts there.

Asset Searches Can Be Helpful in the Decision Making Process

An asset search may help discover assets. It is more difficult (sometimes almost impossible) to collect from a corporate unit owner or a foreign person.  Nonetheless, your community should consider its options after a bank foreclosure - you may be leaving money on the table.

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On March 2, 2010, Congress passed and the President signed H.R. 4691, which extended the National Flood Insurance Program (NFIP) through March 28, 2010.  Homeowners (including community associations) who have current flood insurance policies still have coverage; but NFIP cannot issue new policies, increase coverage on existing policies or issue renewal policies.  Since the extension expired, please refer to the NFIP guide titled “Recommendations/Guidance for Possible NFIP Authority Lapse and Hiatus”.  FEMA has advised that "any hiatus period should be brief and most of the nearly 5.6 million flood insurance policyholders nationwide will not be affected".

Congress is scheduled to reconsider H.R. 4851 entitled the "Continuing Extension Act of 2010", which extends several governmental programs, on April 12, 2010. Once Congress authorizes the NFIP program again, it’s expected to make it retroactive.  However, the hiatus may slow down or delay closings that were scheduled to take place in early April.

Since flooding can often lead to mold if not addressed immediately, the U.S. Environmental Protection Agency publishes helpful information including mold clean-up guidelines. 

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First, a quick note of introduction. As stated above, my name is Travis Moore and for the last number of years I have had the privilege of advocating for the interests of CALL members before Florida's policy makers. This includes the Governor's Office and Executive Branch Agencies such as the Department of Business and Regulation which is charged with condominium oversight and the state Legislature. While decisions are being made in Tallahassee and around the state, it is vitally important the voice of each CALL member is heard by those holding sway over the deliberations. I am pleased to be a part of your team by pointing your megaphone in the most effective direction and being your eyes and ears as the debate affecting our community takes place.

Probably THE hot button issue facing community associations in Florida is mortgage foreclosures and the statutory limit of lender liability for assessments. The association is left maintaining the asset  - the burden on the backs of the units not in foreclosure, but many sliding that way. This added burden is just buttering the slope.

Up until recently, the lending lobby has offered no workable solutions. Now, they are circulating draft legislation creating a non-judicial foreclosure process. To date, no bill has been filed but we suspect it will and CALL will quickly analyze it and get it circulated for your input. Already, we are reviewing the draft so be looking for a CALL Alert soon.

As in any proposal to address this true crisis for associations, there are certain criteria which we will insist on. Obviously it must address the associations' ability to have owners and lenders meet their financial obligations to the association. What is rightfully owed to the association for maintaining the real estate must be paid.  It must be paid as quickly as possible. One of the main issues currently being faced by associations is the length of time it is taking for the property to be foreclosed, while the hard cap of 6 months (COA) and 12 months (HOA) is keeping the lenders' liability unreasonably low. 

It is imperative that any foreclosure process, including a non-judicial one, not put the entire process and timetable under the control of the lender.  The lenders have the most to gain by delay...a cap and avoidance of paying full assessments upon taking title...while leaving associations even further at their "mercy."

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Fannie Mae will Evaluate Whether Hundreds of Condominiums Throughout the State of Florida Qualify for Financing Despite Published Guidelines.

It has been harder and harder to obtain loans to purchase condominiums in the past two years.  Fannie Mae, Freddie Mac and FHA all published eligibility guidelines basically precluding borrowers from obtaining favorable loans to purchase condominiums if:

1. More than 15% of a condo project units are more than 30 days delinquent on HOA dues. This was an existing guideline that is now being applied to new condo projects.
2. Fidelity insurance, ensuring that homeowner association funds are protected, must be in place in adequate amounts. 
3. The  borrower didn't obtain a condo-owners insurance policy unless the master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condo-owners policy, known as an HO-6 policy, covers personal property, personal liability, and the physical unit from the studs and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.
4. More than 10% of a project is owned by a single entity.
5. More than 20% of a project consists of non-residential space; or
6. The association didn't have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.

However, on January 7, 2010, Fannie Mae announced it has appointed a team of employees to determine whether hundreds of condominium projects in Florida are entitled to relief from these guidelines.

Want to learn more about this new development and what steps your community can take to improve mortgage options?  Then attend the CAI-SEFL Annual Day of Education and Exposition being held on January 30 at the Signature Grand in Davie, Florida where Fannie Mae's Senior Risk Manager, Joseph L. Minnich III, will deliver the keynote address.  For the past six months Mr. Minnich has been working with the Florida Project team to develop a program to provide stability and liquidity to Florida Condominium Projects.  He will explain the process and be available to answer questions.  Don't miss it.

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HUD Implements New Approval Process for Condominium Projects to Qualify for FHA Insured Mortgages.

Website Allows Users to Search for FHA Approved Projects.

On June 12th the Department of Housing and Urban Development (HUD) published Mortgagee Letter 2009-19 announcing the new process for approval of condominium projects.  As previously reported on this Blog, Fannie Mae, a federally backed lender, announced several changes to its standards, including the imposition of PERS review.

Lenders are now permitted to determine FHA project eligibility, review project documentation and certify compliance with HUD regulations in furtherance of the directives contained in the Housing and Economic Recovery Act of 2008 (HERA).   In order for a condominium project to be eligible for FHA insured mortgages:

• Hazard and Liability Insurance must be in place.  Flood insurance is also required where applicable.
• Any right of first refusal in the declaration of condominium or other governing document cannot violate prohibitions against discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.  Many projects have been rejected as a result of the provisions granting the Association the rights to "screen" and "approve" purchasers.
• Commercial use cannot consist of more than 25% of the floor area and commercial uses must be homogeneous with residential use.
• A single investor cannot own more than 10% of the units.
• The owners of no more than 15% of the units may fall into arrears (defined as more than thirty days past due in maintenance fees or assessments).
• At least 50% of the units must be sold, although pre-sales apply.
• At least 50% of the units must be owner-occupied or sold to owners that intend to occupy the units as a primary or secondary residence.

HUD provides resources for home-buyers to determine whether projects are FHA approved.  You may search by location, name or status.  The website also reveals which projects have been rejected by FHA or whether approval is currently pending.  Click here to search whether your condominium is FHA approved.

FHA loans are advantageous for purchasers as generally there is less money required for the down payment,  lower closing costs and lower interest rates than sub prime loans.  FHA loans are a good option for borrowers that cannot qualify for conventional financing, as other alternatives generally include large pre-payment penalties.  FHA limits have increased as a result of the stimulus package as well.

Condominium project approvals expire two (2) years after the initial approval and re-certification to determine whether the project remains in compliance with HUD guidelines is required for continued approval.  

Community associations may want to consult with counsel to determine whether it is worthwhile to take action to qualify for FHA and/or Fannie Mae approval, especially if recent sales have slowed.

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A survey conducted by Community Association Leadership Lobby (CALL) confirms problems with community operations and lack of maintenance as a result of foreclosures.

Averaged out, over 100 people per day responded to the 2nd Annual Foreclosure Survey conducted by the Community Association Leadership Lobby (CALL). Over ninety (90%) percent of them say first mortgagees should pay more after they obtain title through foreclosures and more than half of them complain about the amount of vacant homes in their communities.

Foreclosures have a significant impact on association budgets. From the Community Association’s perspective, lenders are insulated from falling home prices while bills for insurance, property maintenance, management and other expenses must be paid. The leader of the Community Association Practice Group of Becker & Poliakoff, P.A. has been quoted saying lenders must pay for the maintenance and protection of the collateral. Associations need effective ways to secure this contribution and continuing to subsidize the administrative and physical needs of the property taxes some homeowners beyond their means.

The Federal Housing Finance Agency House Price Index (HPI) shows home values from the 3rd quarter of 2007 to the present time dropped by close to $3 trillion dollars. The agency’s director, James B. Lockhart, III, offered statistics at a presentation in Washington, D.C. on February 19, 2009. Fannie Mae, Freddie Mac and FHA loans represented just over thirty (30%) percent of those labeled “seriously delinquent” and private sector loans (which include jumbo and sub-prime mortgages) account for more than sixty (60%) percent of the seriously delinquent loans.

While the Homeowner Affordability and Stability Plan provides incentives to lenders to modify mortgages, relief cannot come soon enough for Florida’s community leaders. One respondent to the CALL survey lamented about community associations receiving “the short end of the stick” while elected officials “give in to the demands of the lobby groups of the banking industry”. It appears a mandate has been issued to the elected officials in Florida to create a legislative solution to this crisis.
 

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There are several programs available to homeowners that will avoid the loss of their homes through foreclosure such as repayment plans, forbearance plans and loan modifications.  “Short Sales” have also become a popular solution to avoid foreclosure but “Short-Pay” solutions are emerging as the best option available to help families keep their homes, lower their mortgage payments, and avoid foreclosure even when the homeowner owes more than their homes are worth! 

What is a Short-Pay?
A Short-Pay, or also known as a short-refinance, is a transaction, where a current lender agrees to accept less than the full amount owed to them.  This process is similar to a short sale but, instead of selling the home to a third party, the homeowner keeps their home by refinancing with a new lender with a new loan based on the current market value of the home.  The Short-Pay allows the homeowner to keep their home, and avoids a foreclosure or possible bankruptcy.

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