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.