It has been reported that several of the associations in Sun City and Sun City West are attempting to obtain FHA condo approval. It is crucial that all homeowners, association boards and residents of communities such as those in Sun City and Sun City West, Arizona understand that the majority of the units in these communities which are loosely referred to as “condo’s” are NOT legal condominiums. They are not organized or legally created under the condominium laws and do not have or need several of the documents that would be required as condominiums. These properties are considered Planned Unit Developments otherwise called PUD’s. A PUD is a residential dwelling which is part of an association of the homeowners of the project. Therefore, project approval is NOT required for any kind of financing including FHA.
The difference in financing requirements between a condominium and a PUD is huge. Using the term “condo” loosely can create a situation whereby sellers may not be able to sell their units to a buyer who needs financing due to the fact that lenders outside of the subject property’s area may not be familiar with that community and the properties that exist there. Unfortunately, when these dwellings are referred to as “condominiums,” this term often gets transmitted to lenders through MLS listings, association names, insurance certificates and other documents. Those lenders will then request the “condo” documents which creates major issues in attempting to approve the properties for financing. There are also potential buyer financing difficulties due to FHA investor vs. owner occupancy percentage ratios.
Furthermore, the costs associated with creating a condominium are significant. Legal fees, document maintenance and management company fees can be an enormous and unnecessary expense to homeowners and potential buyers. An association management company just recently charged one buyer over $500 just to provide the CC&R’s and other standard documents! Under the law, management companies are allowed to charge “reasonable” fees for providing this information. This seems to be an exorbitant cost, yet converting associations to true “condominiums” will only increase this cost, as management companies will use this as an opportunity to charge even more to associations and buyers for their services.
The first step in changing this situation is to stop calling these units “condominiums.” It would probably be in an association’s best interests to legally change the name of their association from “XYZ Condominium Association” to “XYZ Homeowners Association”. This would require a vote of the members of the association per their bylaws. Once that is completed, the insurance policies would also be changed. If everybody stops referring to these units as condominiums and removes that word from all documentation associated with the units, then there will be less confusion on the part of lenders trying to finance these units.
In summation:
The difference in financing requirements between a condominium and a PUD is huge. Using the term “condo” loosely can create a situation whereby sellers may not be able to sell their units to a buyer who needs financing due to the fact that lenders outside of the subject property’s area may not be familiar with that community and the properties that exist there. Unfortunately, when these dwellings are referred to as “condominiums,” this term often gets transmitted to lenders through MLS listings, association names, insurance certificates and other documents. Those lenders will then request the “condo” documents which creates major issues in attempting to approve the properties for financing. There are also potential buyer financing difficulties due to FHA investor vs. owner occupancy percentage ratios.
Furthermore, the costs associated with creating a condominium are significant. Legal fees, document maintenance and management company fees can be an enormous and unnecessary expense to homeowners and potential buyers. An association management company just recently charged one buyer over $500 just to provide the CC&R’s and other standard documents! Under the law, management companies are allowed to charge “reasonable” fees for providing this information. This seems to be an exorbitant cost, yet converting associations to true “condominiums” will only increase this cost, as management companies will use this as an opportunity to charge even more to associations and buyers for their services.
The first step in changing this situation is to stop calling these units “condominiums.” It would probably be in an association’s best interests to legally change the name of their association from “XYZ Condominium Association” to “XYZ Homeowners Association”. This would require a vote of the members of the association per their bylaws. Once that is completed, the insurance policies would also be changed. If everybody stops referring to these units as condominiums and removes that word from all documentation associated with the units, then there will be less confusion on the part of lenders trying to finance these units.
In summation:
- REALTORS®: need to STOP calling these units condominiums. Remove the term condominium from all listings.
- Association chairpersons and board members: Check out the feasibility of changing your association name to remove the term condominium.
- Homeowners in associations: Get used to calling your unit a townhouse, patio home, row house, garden apartment or any other term you wish to use OTHER than condominium.
Let’s change the common usage of the dreaded “C” word in our communities to enhance the ability to obtain FHA approved financing on PUD properties.
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