An increasing number of residents, lenders and real estate professionals are experiencing the dreaded FHA Loan Denial in communities with some mandatory fees. Usually the fees are titled “Working Capital” or “Capital Preservation” fees.
These fees can exist in a community’s governing documents whether the community is a retirement community or an all age community. The language in question violates the FHA Free Assumability Clause, and therefore FHA denies the loan (purchase, refi or reverse mortgage).
I have been asked several times for model language. I am not an attorney, nor am I an attorney for a specific community. I have told residents and agents who ask, the key is to exempt properties transferred due to foreclosure, deed -in – lieu of foreclosure or transfer of the mortgage to the Secretary (HUD Secretary) from the mandatory fees.
For those who need examples, here are a couple of examples:
