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Condo Issues: Concentration? Delinquent HOAs? Oakland Tribune Bldg :)

First, unrelated to anything, if any of you appreciate the Oakland Tribune Building as much as I do, here is a great podcast discussing it: http://99percentinvisible.org/episode/tube-benders/

Secondly, we have had condo deals below up recently b/c of HOA issues – one involving “concentration” (one entity owns more than 10% of units, and another involving delinquent HOA dues (more than 15% of owners delinquent).

Note: There are “portfolio loan” options for condos with HOA issues, but buyers needs to be strong, the rates are much higher, and buyers usually need to put down 25% or more.

Below are factors that need to be considered for every condo purchase.

a.  Is the Condo Complex FHA approved? If we are not seeking FHA financing, this question is of course irrelevant.

b.  Is the HOA involved in litigation? If yes, it is not the end of the world. Some lenders will ignore litigation if it is not major or structural, or if it involves buildings or units far removed from the subject unit.

c.  What is the Owner Occupancy Rate in the complex? Again, if you do not know, that is fine. But if you do, that is great b/c the owner occupancy rate helps us decide what lender to use. For owner occupied purchased, the owner occupancy rate can be under 50%.

d.  What percentage of owners are delinquent with HOA dues? If you know that that it is over 15%, (60 days late) please let us know.

e.  Does a single entity or person own more than 10% of the units in the complex? This “concentration rule” often precludes conventional financing.

f.  What are the exact HOA dues? We need documentation to prove the exact number for two reasons: (1) Lenders require it; and (2) If debt ratios are tight, we need the exact number to avoid surprises.

g.  Is the developer still in control of the HOA? This too is another issue that sometimes precludes conventional financing.

h.  Is the building that contains the condo over four stories high? If so, how many stories is it? Some lenders have different rates/pricing for condo complexes over 4 or 10 stories.

i.  Does the condo complex contain any “commercial” (usually retail), or “live/work” Loft space? This is another factor that affects the lender we choose.

j.  Rates are higher; Interest rates are higher for condo financing when the LTV is over 75%.

Jay Voorhees
Founder/Broker | JVM Lending
(925) 855-4491 | DRE# 01524255, NMLS# 335646