By: Stephanie Diana Wilson-Gast
For those who don’t know what a Spot Approval is, within the condo jargon term that is no longer in use. It means to have a condo unit approved or to approve the unit and not the whole complex. Now FNMA, FLHMC, FHA, AND VA do not do Spot Approvals. They were done prior to the crash of 2008 with dire consequences to the lender and borrower.
See lenders require approving the whole project. Even in the limited review process information is obtained for the entire project not just the subject unit. One thing I hear a lot about is not matter what kind of litigation, budget issue, ect it doesn’t effect the subject unit. Which is not the case.
In projects where there are issues with the HOA legally, financially, physically, ect, that’s not a good investment for borrowers or investors. On the underwriting side this creates what is called a collateral issue. Reviewing the whole project not just the subject unit not only makes a less risky loan but, makes less issues for both lender and borrower later down the line.
Reviewing the whole project also when you think globally helps the economy indirectly as well. See as condos become more and more prevalent they become a safer investment for borrowers. Where condos are risky for lenders as it isn’t as simple as underwriting a loan for a single family residents where there’s just one unit to deal with but 2- 2000 units. This makes the risk of something not being maintained causing issues for all the 2-2000 units. But with a review of the whole project it lowers the risk for both parties.
There have apparently been rumors that Spot Approvals are now being brought back like an old TV show. Based on research this is false. Spot Approvals have gone the way of the dodo. You don’t see movies about resurrecting them. Nor will you like see any major lending agency like FNMA, FLHMC, FHA or VA bringing these types of Approvals back. Which is safest for all involved.