One of the most hard-to-find mortgage solutions is when a subject condo is under litigation – not just a plaintiff’s suit, or slip & fall, but for dreaded STRUCTURAL DEFECTS. This happens when the management organization is unable to reach settlement with the builder for flaws in design or undiscovered damage to buildings. In any case, lenders get nervous with a lot of things, but rarely more so than when they hear there could be problems with their property collateral – which they ultimately discover through a mandatory HOA questionnaire. Condos will then be unwarrantable with Fannie or Freddie and private investors will pass on the potential liability – with rare exceptions (see next paragraph). At this point, many times the transaction falls out of contract with potentially hinging liability or the homeowner is suddenly unable to refinance to take advantage of lower rates or better programs. To make matters worse, property values begin to decline for units in the affected development.
Fortunately, the job of the mortgage broker is to find a solution to ANY home financing scenario and YES, we do have one for this make-or-break scenario! Our lenders are able to fund up to the maximum conforming limit ($726,525 for Bay Area counties) for either purchase, refinance or cash-out transactions. Moreover, depending on whether the occupancy is investment or primary residence, the down payment required can be as little as 10%!
The price to pay for extricating a loan like this from an otherwise fatal ending is, of course, higher interest rates and fees. Depending on the loan amount, and other factors, closing costs can easily run significantly higher than normal. That said, the bright light at the end of the tunnel when litigation does eventually conclude, is that property values will see a short-term spike, as some of our realtor partners forecast. So while it’s true that there are higher closing costs today, think about the tradeoff the buyer receives with the benefit of purchasing the home at a ‘less-than-market’ price. Finally, we also typically see borrowers refinance out of the higher rate mortgage into a more stable, lower interest rate loan within the first year.
Condos mired in litigation are an unwelcome sight. But the process for applying for a loan suddenly appears much less daunting when there is a lender willing to give options.