Condos in Litigation; Sometimes OK; Options

We have a condo purchase with an HOA that is in litigation. The litigation involves an owner of a unit in a building separate from our building suing the HOA for mold issues; she is looking for $500,000 in damages. The lender reviewed the legal documents and allowed Fannie Mae financing to go through. The litigation does not significantly threaten the financial stability of the HOA, it is not “structural,” and it does not affect the subject’s building.

If the Condo Complex’s litigation had been more serious, Fannie Mae financing would have been denied. The only alternatives for financing would have then been non-Fannie/Freddie options. Lenders such as New Penn, Fremont Bank, and Bank of the Internet (we have wholesale access to all of them) offer to finance for “non-warrantable” condos, but it is nowhere near as competitive as Fannie/Freddie financing.

Rates for non-warrantable condo financing tend to be 1% to 2% higher than Fannie/Freddie financing, and the financing usually involves Adjustable Rate Mortgages (ARMs). Down payment requirements are also much higher.

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