Over the past several weeks I have received several calls from members telling me their FHA transaction fell out of escrow because FHA denied the loan. FHA loan denials are not uncommon, but what is uncommon is the reason for these particular loan denials. The house is in a 55+ community. It’s not the age restriction that is a problem, it is the community by-laws.
Frequently these communities have Capital Preservation Fees. Because of the way the by-laws are written, the preservation fee violated FHA’s free assumability clause.
Why is this suddenly happening? My guess is the increased number of FHA buyers in the 55+ retirement community market. Previous generations of retirees purchased for cash or had large down payments with conventional financing.
This could become a very large influence on the market. Not only are purchase contracts affected, but so are FHA refinances and FHA reverse mortgages.
On December 16, 2016 I wrote a letter to community managers informing 55+ retirement communities of the possible conflict between bylaws and FHA’s free assumability clause. If you or an agent you know has an escrow fail because of the FHA free assumability clause, let me know and I will make sure the community is sent a copy of this letter.
I have been in contact with NAR’s FHA representative and she is working with FHA to find a remedy to this situation. In the meantime, listing and buyer agents should keep this in mind and guide their clients to work closely with their lender.