Cohousing-L Mailing List: Re: co-housing unacceptable to Fannie Mae?!?

[Lyle Scheer (wonko]

On 4/24/12 11:45 AM, Sharon Villines wrote:
> On 24 Apr 2012, at 1:56 PM, Lyle Scheer wrote:
>>    I'm going through a mortgage process, and hit an underwriter who is
>> telling me, "the project is unacceptable to Fannie for two reasons right
>> off the bat.  One, the project is a Co-Housing Community and second [has
>> a right of first refusal clause]"
> 
> Fannie Mae can't say they are against "cohousing." For one thing, cohousing 
> groups have many different legal structures — it's a nonsensical statement. 
> Perhaps Fannie Mae won't fund coops or something and this person is 
> interpreting the guidelines in error. As long as you are incorporated or 
> legally registered according to real estate law, according to our members who 
> should know, that can't be an excuse.

This was my first reaction to that statement as well.  I went back to
the lender to state that the community is set up as a Homeowners
Association with a very standard set of governance rules.  We did go
over all of this when we were creating our documents.


> We decided that we liked our right of first refusal clause more than we liked 
> Fannie Mae so we are keeping it. One thing we did consider was adding a 
> clause that says "except in the case of foreclosures" or something that says 
> it doesn't apply to banks. The fear on the bank's part is they will get stuck 
> with a property that can't be sold because the community keeps refusing 
> buyers. This is one reason coops have difficulty getting financing — they do 
> have this right. But foreclosures take a long time to play out and we believe 
> that we would know if one was in the works. It would be in the person's best 
> interests to avoid foreclosure and sell to us so we would be protected in the 
> end. But we didn't need the clause in the end so we didn't add it.

Our clause reads as follows:

Right of First Refusal.  No member shall be entitled to transfer any
portion of his or her Lot or Living Unit without first offering to sell
such interest to the appropriate purchaser selected by the Association
("Approved Purchaser"), whether such Approved Purchaser has been named
on a "waiting list" or approved by the board in advance.  Moreover, such
right shall not be exercised so as to restrict alienation, conveyence,
sale, leasing, purchase, ownership or occupancy of units because of
race, creed, color, national origin, sex, age, sexual orientation, or
any other criteria prohibited by federal, state or local laws.  The
Right of First Refusal shall not apply to transfers occurring by
inheritance or devise, or to the creation of any security interest in a
Member's property.  If no Approved Purchaser has presented an offer to
purchase the selling Member's interest within 30 days of notice of
intent to sell, the property may be sold to a third party purchaser.

So, yeah... we thought we had the bases covered, but it appears that
even this is not good enough... Honestly, I think this underwriter
balked at just the words "co-housing" and "right of first refusal" and
didn't read anything else.

- Lyle