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

[David Clements and Evan Richardson (evdavwes]

I found Fannie Mae's policy on "right of first refusal" at this address:  
https://www.efanniemae.com/sf/guides/ssg/sg/pdf/sel022812.pdf


The Fannie Mae document makes clear that the policy on right of first refusal 
applies to condos, but not to other Planned Urban Developments.
Also, that the policy does not forbid all "right of first refusal" clauses,  
but only those which threaten the mortgage company's interest in the property.
The declaration of my Community, Westwood Cohousing, has language which appears 
to protect the mortgage holder sufficiently (sentence in italics):


Item 7. LIMITATIONS ON SALE: Except as provided herein, no Owner may sell any 
Lot or part thereof or interest therein.


Any Owner intending to sell (other than as expressly permitted in the Bylaws) 
all or any part of a Lot or any interest therein (the “Selling Owner”) shall 
give notice (the “Notice”) together with the terms of the proposed transaction 
and name and address of the intended recipient. The giving of the Notice shall 
constitute a representation by the Selling Owner to the Sale Committee and any 
subsequent purchaser produced by the Sale Committee, as hereinafter provided, 
that the Selling Owner reasonably believes the proposal to be bona fide in all 
respects.


Within thirty days after receipt of the Notice, the Sale Committee shall either 
approve the proposed transaction in writing (the “Approval”) or shall furnish 
the Selling Owner with a signed offer (the “Offer”) from a purchaser approved 
(the “Approved Grantee”) by the Sale Committee, upon the same terms stated in 
the Notice, except that the Approved Grantee shall have not less than thirty 
(30) days subsequent to the date of the Offer within which to close the 
transaction. So long as the Offer is monetarily identical to what was contained 
in the Notice, the Selling Owner shall promptly accept the Offer. The Approval 
of the Sale Committee shall be in recordable form signed by any two members of 
the Association’s Board and shall be delivered to the purchaser. The failure of 
the Association to act within such thirty (30) day period shall be deemed to 
constitute approval of the proposal in the Notice, but shall not eliminate the 
Association’s obligation to provide the Approval in recordable form, as 
aforesaid. The Selling Owner shall be bound to consummate the transaction with 
the Approved Grantee per the Offer.


Notwithstanding the foregoing, the sale of a Lot as a result of foreclosure or 
sale under a power of sale in a Holder’s deed of trust shall not be subject to 
this Item 7 or affected in any manner. If, however, a Lot is purchased at such 
a sale, then the purchaser thereat shall be obligated thereafter to honor the 
foregoing limitations with respect to all future sales.


Here is language from the Fannie Mae Document (page 631)
 Condo Project Legal Document Requirement: Compliance with Laws
In addition to representing and warranting that the condo project has been 
created and exists in
full compliance with the state law requirements of the jurisdiction where the 
condo project is
located and all other applicable laws and regulations, lenders also must 
represent and warrant as
follows with respect to the project's legal documents:
Limitations on Ability to Sell/Right of First Refusal
Any right of first refusal in the condo project
documents will not adversely impact the rights
of a mortgagee or its assignee to:
• Foreclose or take title to a condo unit
pursuant to the remedies in the mortgage;
• Accept a deed or assignment in lieu of
foreclosure in the event of default by a
mortgagor;
• Sell or lease a unit acquired by the
mortgagee or its assignee.

Message: 5
Date: Tue, 24 Apr 2012 12:57:01 -0700
From: Don Benson <benson6451 [at] aol.com>
Subject: Re: [C-L]_ co-housing unacceptable to Fannie Mae?!?
To: Cohousing-L <cohousing-l [at] cohousing.org>
Message-ID: <BFF87D7A-086D-4B54-97CC-41DC0B8723DA [at] aol.com>
Content-Type: text/plain;       charset=us-ascii

In 2010 we engaged about this subject with a mortgage broker that was 
interested 
in doing the work making a loan (different from some banks?) and including a 
member of the HOA BOD ( a structure that we have moved away from since then) in 
the process, and discovered the following which may be useful.  

1.  No one that referenced co-housing was able to provide any documentation 
from 
any government agency regarding co-housing.   We also found that "co-housing" 
is 
not a recognized term in the real estate legal language of the Oregon Real 
Estate Commission, and concluded from our collective experience that the term 
is 
also not uniformly defined and practiced anywhere, so when dealing with the 
formal real estate transactions, we avoid using it.  

We also found in checking the listings of Fannie and Freddie that they do own 
the loans for some of our owners, including ours with Freddie Mac.

2.  The point about "right of first refusal" was directly linked to legality of 
any language or action that might or could be considered discriminatory.  
Consequently our HOA agreed to remove the paragraph from our CC&R's and engaged 
an attorney to assist us with this change.  To address the underlying concern 
of 
the HOA that allowed us to insert the clause in the CC&R's in 1998, we are 
increasing our level of engagement with potential buyers to increase their 
awareness of our processes and expectations of owners, and their readiness to 
to 
deal with the challenge between aspiration and behavior after purchase.

3.  Lenders and government agencies seem to becoming more interested in the 
percentage of non-resident owners (reference time-share ownership) and the size 
of the Reserve Fund in their decision process.

4.  The issue was clarified when we discovered the HUD - FHA Mortgagee Letters 
2009-46 A and B dated Nov. 6,2009 regarding Condominium Approval Process.

In the process with the Broker, we obtained a copy of a FHA Connection Approval 
Document showing acceptance and expiration date (term is 2 years) for our condo 
association.  The term runs through the fall of this year, so we have not begun 
the process for renewing the approval.

Don Benson
Trillium Hollow
503.296.7249

On Apr 24, 2012, at 11:14 AM, Diana Carroll wrote:

> 
> Ug!  yes, we ran into this.  We were never able to get a straight answer to
> your question.
> 
> For a long time, we weren't approved for Fannie Mae mortgages because we
> didn't have the right % of units sold.  Then, once we did, we ran into a
> couple lenders who told us that Fannie Mae had recently issued a statement
> *specifically against cohousing*, by name -- that being a cohousing
> community meant you didn't meet Fannie Mae guidelines.
> 
> This was of great concern so we tried to contact fannie Mae directly to ask
> what was what, but we weren't able to get to talk to anyone official...they
> only want to interact with banks, and they are really closed-lipped in
> public about what does and doesn't qualify for their guidelines.
> 
> We eventually found a lender who said, no, Fannie Mae was fine with
> cohousing (or, rather, didn't care about cohousing), and that the other
> banks were just saying that.
> 
> So...what?!?
> 
> We never got to the bottom of that, but did learn that banks often
> misrepresent or perhaps even misunderstand fannie mae guidelines.
> 
> If you ever get to the bottom of this mystery I'd love to hear about it.
> 
> - Diana, Mosaic Commons in Berlin, MA
> 
> PS: One of the reasons we don't have a "right of first refusal" clause in
> our CCRs is specifically because we were forewarned that it made mortgages
> hard to get.
> 
> 
> On Tue, Apr 24, 2012 at 1:56 PM, Lyle Scheer <wonko [at] monkeyhouse.org> 
> wrote:
> 
>> 
>> Hi all,
>> 
>>   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]"
>> 
>>   The second one I've heard others on this list have trouble with, and
>> I'm working to clarify that it's only a 30 day right of first refusal
>> and then reverts to sale to any 3rd party... see if that flies.... work
>> with my community to amend our CC&Rs quickly if not.... I also thought
>> we had language that let banks off that particular hook, but can't find
>> it at the moment.
>> 
>>   However, it's the first bit that truly startles me.  Does Fannie Mae
>> really find co-housing in general unacceptable?  Has anyone ever gotten
>> that back from an underwriter?  Really?
>> 
>>   I'm fighting back on that one by trying to state very clearly that
>> we're incorporated as an HOA, and that we follow HOA rules... all our
>> legal documents talk about a board of directors and votes for exactly
>> this reason.  (NO... we're not co-housing, we're an HOA)
>> 
>>   However, I'm curious to anyone within the past couple of years where
>> the underwriters are getting very picky because of the financial state
>> of loans, has anyone run into the "can't Fannie Mae because you're
>> co-housing" and successfully argued back and how you did it.  Just
>> looking for more ammo in my particular somewhat urgent situation.  I
>> just find it hard to believe Fannie Mae universally is blocking
>> co-housing... if that were truly the case this would then be a call to
>> arms email of what we can do nationally to fix co-housing's general
>> image with Fannie mae.  Personally I just think it's a worried
>> underwriter, but that's also an issue.
>> 
>> - Lyle
>> _________________________________________________________________
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>> 
>> 
>> 
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