By Stephanie Diana Wilson- Gast
When underwriting Condos one of the topics that comes up is delinquency ratios in a project and why does it matter? Well, this is a complex issue within Condo Review and Compliance. First of all we should define what the delinquency issue is. When a person is late on paying their HOA dues for common expenses that the HOA has to pay for this creates a delinquency which the HOA management company or HOA is supposed to track. See what few home buyers know is the fact that HOA’s are able to foreclose, or put a lien on a unit if the HOA dues are not paid. Most laws do not allow for this unless the dues are 90+ days delinquent. Although there is also the concept of a Super Lien but; that is a topic for another time.
FNMA recently changed their guidelines in 2014 to require that a project have no more than 15% of the project can be 60+ days delinquent in common expenses i.e. HOA dues. Previously the rule was for 30+ days delinquent. It seems that this rule was changed because units that are 60+ days delinquent are closer to being in foreclosure. Where 30+ are people who are just late paying. There are a multitude of reasons the dues could be 30+ days delinquent such as the HOA management company has relocated and does not have online payment plans. This sort of scenario would cause a mailing issue to contribute to the delinquency.
This being said another question many ask is why is this just a full review requirement? It is and it isn’t. See if any documentation in the file shows the delinquency ratio it can be an indicator of the financial health of the project which can be interpreted as a collateral issue. Also home buyers would logically not want to invest in a project that has a high potential foreclosure ratio.
There really are not any loop holes to dealing with this issue. Which makes this a good thing for lenders and buyers to watch out for when shopping for a condo project. It is an often over looked issue but, none the less this issue can make or break a deal.
Hopefully this article helped to answer some questions or to spark a conversation with your local real estate professional or underwriter. Again these guidelines are noted on FNMA’s most recent seller guide dated 3/29.16. Always consult your underwriter for any guideline changes. If this was helpful to you remember sharing is caring.