Condo Terms Glossary A- G

Stephanie Diana Gast- Wilson

 

It is understandable that since Condo underwriting is such a specialty skill that many terms and jargon are lost on those who invest or work within the industry and do not deal with condos on a daily bases.  So, this is a first part series of condo glossary terms.  This article will cover terms A- H.

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    • A
      • Asbestos
        • Asbestos which you can find information on what it is https://www.asbestos.com/asbestos/ .  In layman’s’ terms , it is a material used in construction to resist fire damage.  However, it can cause cancer among other issues as well when it becomes powderized and in the air.  It is good to note where asbestos is present the appraiser must note it and give an opinion on how hazardous the exposure is based on a building standpoint.  From a condo standpoint based on current agency underwriting guidelines a stage 2 environmental hazard assessment must be done and an asbestos report must be obtained.  Also be sure to check and see if the HOA is under any sort of litigation due to this condition in the project and if there has been any abatement.  

 

  • See FNMA seller guide section B4-2.1-03 through -05, Environmental Hazard Assessments.  

 

    • Assessment
      • The word assessment is another way of describing the HOA dues charged to the unit owners for the upkeep of the property.  
    • Appraisal
      • A report that assesses the value and condition of a property.  Please note that a condo appraisal is on a 1040D form.  Also, verify that it is not subject to or on legal- non conforming land.
    • Apartment
      • The use of the word apartment can indicate in certain states the styling of the condo meaning one unit above another.  This can also be used as nomenclature for a condo unit in the title, legal docs and HOA cert.  However, this term can also refer to apartment style rental units on the project that are part of the commercial space.
  • B
    • Budget
      • An estimate of income and expenditures over a period of time.  With regard to condos the time period tends to be financial year or annually.  Reviewers should verify when the budget expires.
        • See the budget review guidelines per agencies under full review requirements.  Also, note that 2-4 unit projects have a different set of guidelines regarding budgets.
    • Building
      • This word is often used to describe the structure the unit is located in.  Building or buildings can also describe different physical or legal phases.  See guidelines on legal phasing and new construction projects.
    • Boilers and boiler insurance
      • See mechanical breakdown but a boiler is a mechanism that heats a home much like a heater/ water heater.  
  • C
    • Construction
      • Construction or New Construction can relate to if the project meets established guidelines.  This can also be a term regarding defects or repairs that are going on within the building.  
    • Conversion
      • Conversion is when the building is either gutted in a full or part from one type of building to another.  Some conversations are in legal description alone.  An example would be from apartment complex to condo.  Please note that FHLMC guidelines require for a project that was converted in any capacity to be considered established must have had the conversion completed at least five years before the date of underwrite and three years for FNMA.
    • Condo
      • A condo is a legal description of a property type like a manufactured home or single family residence.  This is not to be confused with the property style being apartment style or townhouse style.  (See article on PUDs and Townhouses).  
  • D
    • DU
      • DU is an acronym for Desktop Underwriter which is the program used to do the initial underwrite for FNMA.  This document regarding condo compliance underwriting first of all details what the loan product type is such as conventional, FHA, VA, USDA or a Bond loan.  Also this will note the occupancy type and the loan to value ratio otherwise known as LTV.
    • Deed Restriction
      • Deed restrictions are private agreements that restrict the use of the real estate in some way, and are listed in the deed. The seller may add a restriction to the title of the property. Often, developers restrict the parcels of property in a development to maintain a certain amount of uniformity.
    • Deed In Lieu
      • A deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.
  • E
    • Established Condo Project.  This is a condo project that meets FNMA’s guidelines for type S review.  Current guidelines define an Established project as a project with 90% or more of the project sold and conveyed, complete and not subject to additional phasing or construction, all common areas are completed and the HOA has taken control of the project from the developer.  
    • Equipment breakdown/ Mechanical Insurance has to do with a coverage clause on the HOI insurance for common area equipment.  Such as boilers,
  • F
    • Fee simple
      • Fee simple is a permanent and absolute tenure of an estate in land with freedom to dispose of it at will, especially in full fee simple absolute a freehold tenure, which is the main type of land ownership.
    • Flood cert
      • A Flood cert or flood certification in real estate is a document that states the flood zone status of real property. … If it is in a flood zone, federal flood insurance is required.
    • Foreclosure
      • the action of taking possession of a mortgaged property when the mortgagor fails to keep up their mortgage payments.  AS a condo specialist this can be a guideline issue if the HOA is requiring more than 6 months of past HOA dues and if this is in line with the state’s condo laws
  • G
    • Ground Lease
      • Ground lease also known as a LeaseHold, or Ground Rent is an agreement in which a tenant is permitted to develop a piece of property during the lease period, after which the land and all improvements are turned over to the property owner.  See guidelines for information on the review of ground leases.

Glossary Dictionary Definition

These are some of the main terms that need more clarification normally in my day to day.  Shoot an email or a tweet if you know more terms related to condo underwriting for A-H.  Remember sharing is caring so feel free to share this post.

Site Vs. Detached Condos

By: Stephanie Diana Wilson

Site Condos have always been a tricky subject particularly regarding USDA and FHA loans. However, conventional guidelines have changed recently providing lenders more clarity on the difference between a Site Condo and a Detached Condo. And before it is asked yes this post is an extension to last week’s topic post on “It Is Not a Condo It’s a Townhouse”. Much like the confusion between Planned Unit Developments or PUDs and the various styles of condo units the style of detached condos which look a lot like a detached PUD within a sub division can look a lot like a Single-Family Home or SFR.

Now before we start on this journey our normal CYOB moment. As a reminder guidelines change frequently and we are talking about guidelines posted online at the time of writing this article. If you have more in-depth questions be sure to contact your local mortgage loan officer or underwriting professional. Now that’s out of the way let us move on back to the topic at hand.

The issue becomes when the title shows that your subject unit is in fact a condo in a condo project is it detached or not. Normally an appraisal will show pictures but; I must admit sometimes it is hard to tell in the pictures. So, my advice to underwriters is never be afraid to ask the appraiser to verify if your subject unit is 100% detached. Once it has been defined as both condo and if it is attached or detached the next big question to ask is if the unit is a detached unit in a project of detached units or is this a detached unit in a project that has both attached and detached units?

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Then we move on to trying to define if the unit is a site condo or a detached condo. Now Fannie Mae (FNMA) has made a list of defining factors that a site condo must meet. This info can be foud on the FNMA guidelines dated 3/28/17 at https://www.fanniemae.com/content/guide/sel032817.pdf on page 763.

Site Condo Definition A site condo is a detached condo unit in a condo project that meets all of the following:

• Project consists of all single-family detached units where the unit owners own the land and the improvements on the land.

• Project has minimal common elements, which may include project signage and limited undeveloped green space.

• Project does not own any common amenities including, but not limited to, swimming pool, fitness or recreational facility, playground, laundry facility, or clubhouse.

• Project does not own or have responsibility for maintaining its own infrastructure such as roads, street signage, electricity, water and sewage, snow removal, or garbage disposal.

• Project has minimal or no involvement with a homeowners’ association, including no or little

dues; no special assessments; and no road, amenity, or common element maintenance.

• Unit owners are required, per the condo legal documents, to carry their own individual hazard and other applicable insurance coverage, which may include flood and liability insurance. – (Fannie Mae seller guide dated 3/28/17)

Now part of the reason that the defining the difference between a detached condo and a site condo is because they are underwritten differently. Detached condos that do not meet all the above noted items to be defined as a site condo are underwritten as a condo through limited review. Detached condos per the current guidelines do not limit the ability to do detached units based on Loan To Value ratios or LTV. Which we have discussed in other articles. So, regardless of the LTV detached condos are currently underwritten as a limited review.

Now much like a PUD site condos do not require condo review process. Also, like a PUD a site condo is underwritten like an SFR. However, the current guidelines require that lenders must verify more info. Page 764 of the Fannie Mae guidelines updated 3/28/17 found online at https://www.fanniemae.com/content/guide/sel032817.pdf reads:

For site condos that meet all the criteria listed above, a project review is not required. Instead, lenders must confirm the following requirements are met:

• The project follows Fannie Mae’s requirements for priority of common expense assessments;

• The project is following Fannie Mae’s requirements for projects located on land zoned as legal, non-conforming land use; and

• The appraisal, completed using either Form 1004 or Form 1073, must confirm the local market treats units in such a project as comparable to owning a unit in a single-family detached housing development that has not been organized as a condo.

Hopefully this info has helped you. Remember sharing is caring so share the article. Also, you can find me on twitter at @sdgwwgds and on facebook just search condo land blog. If you have questions or topics you would like address send us a message or comment at facebook or twitter.

It’s A Townhouse NOT a Condo?

By: Stephanie Diana Wilson

 

Now this is a phase I have had to explain over and over drives me nut.  It drives me nuts when sales reps and branches try to tell me a subject unit is, “it’s a townhouse not a condo”.  Which is a common statement in DC and Colorado where there are townhouse style condos going up and attached PUD’s.  This is a common misconception as townhouses are a style of condo.  Often what the person wants to say is the unit isn’t a condo the subject unit is an attached Planned Unit Development or PUD.

 

The first issue is that many don’t really know what a condo is exactly.  A Condo much like a Single Family Home (SFR), Modular Housing, Manufactured Housing, Planned Unit Development (PUD) is a legal description of a property.  Where row, townhouse, garden, high rise, etc are styles of properties.  The legal description for a condo in short is a property where each unit owner owns their unit with an undivided percentage of ownership of the whole property.  
Now it is true that one style of condo is a lot like an apartment where there is a person living right above each other.  However, the styles differ greatly in fact there are styles of condos called detached and site condos which are much like a single family home or SFR within a condo complex.

Low Income Retirement Condos or Complex

There are also condo projects that are townhouse style where there is an up and a downstairs level inside the unit.  Also where a unit might be single story like an SFR or cottage like.

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Now a PUD is a horse of a different color.  PUD’s are a planned unit within a subdivision which can have mixed use land within.  A great example from popular culture is in the movie Poltergeist the homes are PUDs within a sub division.  Course that also can take us on the topic of track homes which is a topic for another day.  The difference further in a PUD from a Condo is how they are underwritten.  As a PUD legally is defined much like a house so it it underwritten much like an SFR.  A Condo on the other hand is more involved because the financial implications an HOA can create as a risk factor for underwriting.  

 

To avoid incorrect underwriting always look at the legal description which is most easily found on the title.   Usually condos in a legal description state the word condo or note a percentage undivided interests.  I have never seen a legal description as a townhouse.  So, the moral of the story is alway read the title report.  It can save on underwriting issues, wrong appraisals and other additional costs change in property type can cause late in a loan.  And know there is no such thing as a property type called townhouse.  But there is a condo style called townhouse.  
If this article helped you remember sharing is caring.  Also don’t be shy leave a comment on topics you want covered regarding condos.  

Florida the Sunshine State with Different Condo Rules

By: Stephanie Diana Wilson

Based on questions I have been getting not just at work but; from other friends who work in the mortgage field a blog post on Florida Condo Underwriting guidelines since they differ greatly from condos anywhere else in the country. Or as one of my friends in the mortgage industry says, “OK it is time that we have a coming to Jesus on this topic.

Now for our usual CYOB (Cover Your Own Behind) please be sure to check with your lender or realtor professional to verify any updates to the guidelines or how the guidelines may affect your individual circumstances. Remember always consult your local Real Estate professional or Underwriter.

With that out of the way let’s discuss Condos in Florida. Florida’s real estate market has been hit really hard not only by climate change but also by the financial crisis of 2008. Only now is the state of Florida starting to come out of the abyss. And only now are the HOA’s starting to run their projects in line with the idea in mind that they need to make their projects saleable to lending agencies.

However, as Condos are a great and smart investment for borrowers they can be a risky investment for lenders. If the project is not running properly financially or keeping up with repairs at best lenders have a marketability issue in the event of foreclosure at worse they have a safety issue making the project non saleable. Because of this lending agencies have installed underwriting guideline rules on Loan To Value Ratios (LTV) that are different in Florida compared to the rest of the country.

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Credit to below picture to Florida-Condos.jpg (1000×750)

 

First let’s clarify what LTV is exactly. LTV or again Loan To Value ratio in a nut shell is the amount of deposit that is brought in and the total ratio it is to the total value of the loan. So, if a borrower comes in with a 10% down payment that means the loan has a 90% LTV as 10% of the total value was brought in by the borrower. Another example is where a borrower comes in with 3% down on a down payment assistance plan (like here in California we have CALHFA) which calculates to an LTV of 97%. Basically; the higher the down payment on a loan, the lower the LTV is on the subject loan.

All this being said the max LTV’s for limited review on established projects are as follows in Florida:

Occupancy type Max LTV

Owner Occupied unit

75%

2ND Home

70%

Investor / rental

Not eligible for limited review

The rest of the country’s LTV guidelines requirements for established projects are as follows:

Occupancy type Max LTV

Owner Occupied unit

90%

2ND Home

75%

Investor / rental

Not eligible for limited review

So, in Florida a higher deposit is required in order to do a limited review. Now a limited review is done on established attached projects. We can tackle the topic of detached vs. site condos another day. We will also tackle further in another article about new construction in Florida. But, lets cover what a limited review is and why it is important that a higher deposit is required in Florida to do said review.

A limited review on an established project is a brief look at the project as certain things are not asked on the short form used for limited review. You can find Fannie Mae’s full review/ long form, and limited review/ short form standardized HOA cert at https://www.fanniemae.com/singlefamily/project-eligibility . One of the questions not asked on a short form is how many units are delinquent in HOA dues 60+ days and items like how many units are rental units and second homes? These are considered lower risk because the borrower came in with more down payment.

Full review on an established project includes how many units are in the project, investor concentration, etc. Also, the full review includes a review on the budget which includes making sure the HOA is not spending more than they are making. Also, the budget review includes an analysis of if the HOA is allocating 10% of the total dues to reserves and if not is the HOA following a reserve study that meets guideline requirements or not? It can be more involved and the HOA may or may not be following guidelines. Also, the amount of delinquencies in the project could also create an issue as agency guidelines require no more than 15% delinquency otherwise a PEW waiver may be need. Creating an added risk on a loan with a lower deposit.

Now the reason that this is a “Coming to Jesus” topic is that these LTV guidelines are based on the location of the subject unit not the location of the lender or broker’s office. Unfortunately, this can cause confusion for the loan originators. So, there should be emphasis for loan originators who do loans in Florida even when they are located outside of Florida reviewing the guidelines regarding geographical location and LTV in the guidelines. Not only will this help to prepare the borrower for what info will be pulled but also help to properly plan for how long it will take to get the loan cleared. Florida is still a Condo Land but; to underwrite there you got to remember the LTV guidelines.

If this article helped you remember sharing is caring. Also, feel free to suggest Condo questions you want to see addressed.

Sharks and Real Estate

By Stephanie Diana Wilson- Gast

 

Personally I have always loved “Shark Week”, on the discovery channel.  They are beautiful and misunderstood creatures.  Being a native Californian and living most of my life in the San Francisco bay area sharks are a relatively common concern.  As a child I loved the Shark exhibit at the Monterey Bay Aquarium and the display of adolescent aged Great White Shark teeth from a shark caught off the coast of Santa Cruz.  Or when they have an exhibit on the Great Whites they used to catch from the wild to study.  There is a great article on this breed of shark on the Monterey Bay Aquarium site at https://www.montereybayaquarium.org/animal-guide/fishes/white-shark.  Oh and the Shark Experience at Vallejo’s 6 flags Marine World https://www.sixflags.com/discoverykingdom/attractions/shark-experience is fun for all ages.  And it is a relativley common sight to see Sharks eating seals in San Francisco, http://abc7news.com/news/cluster-of-20-great-white-sharks-spotted-near-pacifica/1050614/.  We even have Killer Whales that have been recorded attacking and killing great whites in the San Francisco Bay.  https://www.youtube.com/watch?v=a7MCq4gkbm4.  In Southern California locals are used to news and weather reports that include shark warnings.  

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You may be reading about my love of local Sharks (which includes the San Jose Sharks hockey team), and wondering what does any of this have to do with Condos and real Estate?  Well, California is always in a boom for housing and the state is its own Condo Land.  So, is Hawaii which is a popular place to buy condos as well if only for a second home.  

Both Hawaii and California are known for their sharks and shark attacks which does not deter home or Condo sales.  However, with Florida finally starting to come out of the real estate slump it has been in since the 2008 financial crash and the news regarding Florida revolving around the recent gator attack, an enormous gator on a golf course and the recent shooting in Orlando.  (Our Hearts are with those mourning loved ones in Orlando). I have to say honestly it is a common to get an appraisal that has a gator on the patio and a note saying there were no pictures on the patio because of a gator. What we don’t hear about is the fact that Florida is home to the most amount of sharks in the country.  

This includes Bull Sharks which live in fresh and salt water.  http://www.sun-sentinel.com/local/palm-beach/fl-riviera-beach-sailfish-marina-shark-attack-20160413-story.html.  Bull Sharks are known for being extremely violent.

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The National Geographic website posted a map on http://news.nationalgeographic.com/2015/07/shark-attacks-in-the-us/ showing that the most shark attacks happen on the South East Coast and Gulf of Mexico which both waters boarder Florida.  

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Also currently in the news in Texas off the Gulf Coast they are suffering from a Flesh eating bacteria that is being found in their sea water.  http://www.chron.com/news/houston-texas/article/Report-Another-man-gets-infected-from-8325546.php   And although Shark attacks are not as common in Texas they are home to Great Whites.  I guess everything’s bigger in Texas.  
I could get onto a soap box and note that over fishing and pollution are driving these once thought to be deep sea sharks.  Though I believe there is a way to fix the environment to help these creatures go back to their natural habitats and not be on our beaches so much that America has a rich tradition of Shark Attack movies.  However, that is a conversation for another day.  Today being the first day of Shark week I encourage everyone to learn about these wonderful creatures and respect that when we buy homes on the beach we are paying to look out into their homes.  Respect should be given to these creatures and caution to those who live near them.  

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Delinquency Issues and Condos

wpid-1.-skyscraper.jpg.jpgBy 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.

Ground Leases and What to Watch For

Ground lease also known as a Land Lease, Lease Hold, Ground Hold, Land Lean, ext.; call it what you will these can throw a monkey wrench into a mortgage deal.  For this article we will just call them ground lease(s).  The most simplistic way to describe what a ground lease is to picture a house;  In mortgages where there is a ground lease one person owns the house on top of the land and another person or entity owns the ground under the structure.  However most of these leases are long term usually 99 years.  Although I have seen some worded as, “For all Eternity” and “Forever and ever”.   A more in-depth description may be found on http://www.investopedia.com/terms/g/ground-lease.asp

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This article is just a general look at ground lease reviews and what investors and buyers should know to make an informed decision.  For further information please speak with your underwriter.  Now that we have covered the fine print CYOB information let’s dig into this topic.

One of the main guidelines is that the ground lease must last five years after the life of the loan.  So if you have a 30 year loan the lease has to at least last 35 years from the loans funding.  However, that leaves the investor/ borrower with the potential issue of needing to renegotiate their ground lease.  So, investors/ borrowers should do some research prior to signing the sales contract and going through with a loan that has ground leases.

  • First find out IF your house, condo ext, has a ground lease.

The preliminary title which is normally ordered prior to the appraisal and provided to the appraiser will tell you if it is a ground lease or not.  As noted above there are a multitude of names for this sort of lease agreement (I could do a whole article on that topic alone).   That being said if the prelim doesn’t say fee simple on it checks with your title company.  IF you have access to it check the Deed of trust which will have a rider or section of the document noting ground lease.

  • Be sure that all ground lease docs are gathered ahead of time.

Many ground leases have multiple leases on the land known as master and sub leases.  A great example of this is the California University system actually owns a lot of land around their various campuses which have sub leases that are assigned to developers or Home Owners Associations (HOA’s).  When attempting to obtain a loan on a ground lease property be sure to have all these items are accounted for.

  • Find out who the lease is with

This brings us to our next tip which is to find out who the ground lease is with.  Often on the east coast many ground leases are dated to the civil war or founding of our nation.  I have to say personally I enjoy reading those ground leases.  Mostly, because; how many of us in the mortgage industry get to work with a bit of American history as part of the mandatory documentation?  However, these leases have a chain of family that follows a blood line until sold.  So, these you will have to negotiate with an owner as apposed to an individual person.

However, some ground leases are with entities like the one noted above or the US government, Bureau of Indian Affairs (BIA), or a company owner.  Those usually have a process for extensions on the ground lease.   The BIA has a great site showing the steps and what to expect when trying to negotiate those things.  https://www.iltf.org/resources/leasing-indian-land

  • Find out how long the lease is for?

This can be a key factor for your decision.  If this lease is for a significant amount of time past the life of the loan it may or may not affect you directly.  Such as if a person is buying a home with a 30 year mortgage and purchase; the home at 30 years of age.  Let’s say that the ground lease in this case the lease expires 40 or more years after the life of the loan.  Statistically speaking in this case the expiration will not be a factor for the buyer in this case.  However, this scenario is extraordinarily rare!

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  • Does the lease have the opportunity for you to purchase the lease?

The above scenario’s rarity leads us to the next thing to research.  Does the lease have an option to buy the land?  If it does and the buyer can afford it that would solve a great deal of the short falls with this sort of investment.  Although if purchasing isn’t an option then the case well…. that is a discussion to have with your underwriter and financial advisor.

 

  • How much per month additionally will be charged for the lease?

If the amount on the lease isn’t tacked onto the monthly mortgage and is a separate charge and even if it is tacked on you should find out how much additionally it will cost you.

Don’t get me wrong ground leases can be a beneficial arrangement for all parties involved it is just a matter of additional planning.  As most buyers/ investors know planning is one of the keys to wealth creation and maintenance.  Though the main idea pushed as most important in the real estate industry is location, location, location I would argue; that it is Research, location, planning.

Check out these additional sites for additional information on the topic of ground leases:

http://homeguides.sfgate.com/ground-lease-1793.html

http://homeguides.sfgate.com/rules-land-lease-8216.html

http://www.bia.gov/WhoWeAre/BIA/OTS/RealEstate/

Kiddie Condos: Re-surging Trend or Unwarrantable Condo Project Type?

By: Stephanie Diana Gast- Wilson

Many parents when they send their kids off to college might co sign on a new car to help their children save money in college.  Or co sign on an apartment near campus since it is cheaper then living on campus and many students don’t yet have the credit history to rent.  Although some parents instead opt to help their child to buy a condo which may or may not be in a project/ condo type known as a “Kiddie condo”.  (Not to be confused with Kitty Condos which are a type of cat tree/ cat bed.)

So, the defining characteristics of a “Kiddie Condo” aside from the student being the home owner, primary occupant on the home loan these type of loans allow for the unit owner to help pay for the costs by renting out the additional units.  I am sure there are still projects in college towns that may still operate where these sort of functions are allowed.  However, many CC&R’s/ Condo Declarations (which are the legal documents that state the rules and guidelines the HOA and the owner have to follow)often do not allow for the renting of less then the whole unit or not at all.  Also as defined on FHAinfo.com the issues with these types of condos along with the pros.

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With a Kiddie Condo loan program, at least one borrower must occupy the property as his/her primary residence, but extra bedrooms could be rented out to help cover the cost of the mortgage payments. This is a perfect way for a college student, recent graduate, or anyone unable to obtain a loan on his/her own to buy a condo or townhome or single family home with the help of a family member. The tax benefits, such as deducting mortgage interest and real estate taxes on a Federal Income Tax return, can be divided among the owners, according to who pays the expense. See your tax advisor for details.

Make sure you read the section on credit as both borrowers must qualify. If the owner occupant has little or no credit you should review the “non traditional credit” section and pay particular attention to the information on the 2nd page.

Note that the property DOES NOT have to be a Condo. If it is a condo then you need to make sure that the project is approved or the that the property can get a “Spot approval”. Please see the Condo section for more information. (http://www.fhainfo.com/kiddiecondos.htm)

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Now the reason that many CC&R’s/ Condo Declarations tend to have the clause written preventing the renting of less then the whole unit is to prevent “transient” property types.  Which FNMA finds any type of transient (limited stay or limited accessibility of the unit [such as just renting a room]) as a potential condotel indicator.  Condotel’s are a horse of a different color and we will talk about those in another post.  For now just know that FNMA doesn’t like condotels and finds them unwarrantable for financing.  Also know that FNMA isn’t the only one who hates them they are unwarrantable to Freddie, VA, or FHA loan products as well.  Forbes.com goes further to talk about the potential financial pit falls that “Kiddie Condos” can reek on one’s taxes.  http://www.forbes.com/sites/peterjreilly/2014/07/23/use-of-condo-by-son-blows-1031-exchange-for-state-tax-purposes/

That being said, this makes any condo review start to sink on what feels like shaky ground.  What is an Underwriter or Condo Review Specialist to do? Although most Condo Review Specialists know when in doubt ask FNMA.  When asked;  FNMA replied with the following via email. “We do not have a review type for. ‘Kiddie Condos’.  The project must meet our requirements as either an Established or New project.  You need to determine if you want to do a Lender Full Review, CPM or if your loan qualifies for a Limited.”  So, if dealing with a project that is marketed as a “Kiddie Condo” as opposed to a borrower just trying to help their kids buy a detailed investigation should be done on the HOA to make sure it fits FNMA’s guidelines.

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Now there is a new trend to “Kiddie Condos” and it has nothing to do with kids buying their first home.  It has to do with mom and dad buying a second home/ vacation home.  The New York Times has an article noting the trend of parents buying condos in the towns their kids are going to college so they can watch their games and spend holidays together.  http://www.nytimes.com/2008/08/22/greathomesanddestinations/22college.html?pagewanted=all&_r=1& .  Personally I find the quotes within this article to really make me laugh as a retired high school and college athlete.  “…’Just what every kid wants — their parent moves in, right?’, said M. J. Berrien, who, with her husband, the president and publisher of the Forbes Magazine Group, keeps a main residence in Westport, Conn. ‘But we’ve always been very active in her sports life and we wanted to be there for her games. That was the whole idea’(NY Times)”.  However, the article goes on to explain that for families where doing this not only saves them the stress of finding a hotel and it helps their family bond and have some normalcy when children are going through the emotionally tumultuous time of college.

 

 

 

Work Cited

Resources | Guaranteed Rate. (n.d.). Retrieved March 19, 2015, from https://www.guaranteedrate.com/resources/kiddie-condo-mortgages

Beware Co-Signing For A Kiddie Condo Loan | Bankrate.com. (n.d.). Retrieved March 19, 2015, from http://www.bankrate.com/finance/mortgages/co-signing-kiddie-condo-loan.aspx

FHA Kiddie Condo Loans: First Homes for Young Adults. (n.d.). Retrieved March 19, 2015, from http://www.mortgage101.com/article/fha-kiddie-condo-loans-first-homes-young-adults

8z Mortgage. (n.d.). Retrieved March 19, 2015, from http://8zmortgage.com/kiddie-condos-not-just-for-kiddies-or-condos/

FHA Kiddie Condo Loans are a Great mortgage option. (n.d.). Retrieved March 19, 2015, from http://www.homerealestate.com/cindyfoster/pages/kiddiecondoloans-104166

Kiddie Condos: FHA Non-Occupying Co-Borrower program. (2014, February 19). Retrieved March 19, 2015, from http://ncfhaexpert.com/fha/kiddie-condos-are-not-just-for-kiddies/

FHA’s. (n.d.). Retrieved March 19, 2015, from http://library.hsh.com/articles/homeowners-repeat-buyers/fhas-kiddie-condo-program-for-student-housing/

Kiddie Condo Program. (2012, May 8). Retrieved March 19, 2015, from https://www.lendingtree.com/fha-loan/kiddie-condo-fha-mortgage-article

Kiddie Condo Loans for FHA Loans – KiddieCondoLoans.com. (2013, June 6). Retrieved March 19, 2015, from http://kiddiecondoloans.com/

203k Loan | 203k | FHA 203k. (n.d.). Retrieved March 19, 2015, from http://www.rehab203kloan.com/kiddie-condo-program.php

Use Of Condo By Son Blows 1031 Exchange For State Tax Purposes. (n.d.). Retrieved March 19, 2015, from http://www.forbes.com/sites/peterjreilly/2014/07/23/use-of-condo-by-son-blows-1031-exchange-for-state-tax-purposes/

Tutelian, L. (2008, August 21). Following the Kids to College. Retrieved March 19, 2015, from http://www.nytimes.com/2008/08/22/greathomesanddestinations/22college.html?pagewanted=all&_r=0

 

About The Author of Condo Land

Afternoon People.  My name is Stephanie Diana Wilson- Gast and I am the author of this Blog, “Condo Land”.  It was created to help the gambit of people in the real estate industry specifically regarding Condos the management, investment, and underwriting of such.  However, from time to time there will be articles just on business related items and real estate focused items.  Much of the quotes from Fannie Mae (FNMA) were from the guidelines at the time the article was written.  As our CYOB (Cover Your Own Bum), please if you have questions speak to your real estate professional or underwriter.

I got my start in the Real Estate industry doing affordable housing property management.  From there during the 2008 financial crash my family  and I started a Volunteer program called TW housing, (Which is short for Torres- Wilson Housing).  The volunteer program ended in 2014 but the accomplishments it made to the Oakland community deserve to be put to paper.  Or more to the internet pen.  How it started was in 2008 while I was working doing Property Management in Contra Costa County I did on site Property Management.  One of my good friends Teresa came to see me at work (since I had to live where I worked) and she brought to me and my husband an issue she found with her step mother.  Her step mother claimed she was a victim of ID theft and now her home was about to be foreclosed on.   Since, she could no longer afford the mortgage and the foreclosure would kill her financially she needed help badly.

So, the first problem she needed to file with the police department and her creditors that she was a victim of ID theft.  This is becoming a more and more common crime in the US so I advise all to watch their credit reports, bank statements and how you dispose of all documentation accordingly.  Also this crime is being seen more and more done to seniors and often as in this case it was a family member who stole her info.  I know this makes trusting even family hard but it is a harsh truth.

Second we needed to get her onto a wait list for affordable housing.  Just in case we were not able to fight in court or make a plan to save her home she needed a place to live.   Since there was so much confusion industry wide regarding the MHA process there was so much stone walling to the home owners making many just get up and walk away from their homes.  This not only hurt the homeowner but the economy as well.  For fear that her home would be taken back in foreclosure or that she would also choose to wipe her hands and walk away she needed a place to live that was affordable for her fixed income.  When there is a bad situation it is best to plan ahead so that it all works out in the end.   Using connections I had to get her quickly onto wait lists and she got into housing.  The place she got into is centrally located to grocery, shopping and restaurants.  It also had a meal plan for her since she “didn’t do cooking”.  So, she was very happy for all that.

Now what we did for her house… while fighting to get an MHA loan which is a Making Homes Affordable and mortgage adjustment through the Oboma Housing Program to help people stay in their homes we came up with a plan.  What we did was reset her home loan as it being her investment property, did the same with her home owners insurance.  We also fixed it up with volunteers who donated materials and services.  Thus making it ready for a HUD inspection.  We got it inspected, approved and rented within a month.  Which was a feat in it of itself.  Now she has her home working for her, so she can afford to take care of her home and stay above water and live in a safe comfortable affordable housing program.

After helping her various other Oakland residents asked for help because they were in similar issues especially with their home in pre-foreclosure. So, I helped those people convert properties of theirs into rental properties and taught them how to manage their own properties.  And for others who wanted to stay in their properties we helped facilitate the MHA process and assisted in job coaching, and budget/ financial training.   Also I helped them get training through the local housing authority as property managers and property owners.

Since then I have gone into Mortgage Compliance as a career field specializing in Condo Project Review/ Condo Compliance.  After noticing how many people across the board have so many questions on investing and underwriting Condos I started this blog and called it, “Condo Land”.  I am currently finishing my Masters in Operations Management at Southern New Hampshire University and preparing to start a Doctoral Program in Fall of 2017 in Business Administration.  Feel free to check out more info on me via LinkedIn at Public Profilehttps://www.linkedin.com/in/stephanie-diana-gast-wilson-590b3757.  

Should you have a topic on Condos that you would like researched and written about please leave a comment or connect via LinkedIn.  If this or any other article helped you or interested you remember sharing is caring.

 

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