Cohousing-L Mailing List: Re: Right of first refusal and exemption for Mortgagee in possession

[Sharon Villines (sharon]

> On Dec 13, 2023, at 6:48 AM, David Michael <david [at] ic.org> wrote:
> 
> However, we have a clause in our Lease (CC&R) that means a mortgage 
> company/Bank who  re-possesses (forecloses) on a house is exempt from many of 
> the conditions i.e. first refusal and having to pay 0.5% purchase price. We 
> had the Lease (CC&R and bylaws) checked by a number of banks before agreeing 
> it in 2001. The 0.5% payment has been a  really useful and painless  income 
> stream over the last 20 years.

This seems a good solution to calm mortgage people. But have you had units 
foreclosed? When have companies paid the 0.5%?

When I researched all the requirements of the various loan programs, I found a 
sentence from one lender that suggested wording to clarify the purpose of the 
Right of First Refusal. I’ve been looking for the exact phrasing but my file of 
drafts and notes is so huge that searching the original form of this phrase 
returns too many documents to check. (We are in a multi-year process of 
amending our bylaws and I have 430+ MB of reference materials and drafts to 
search in my Bylaws Revisions folder.)  

This is the heart of it:

> The primary purpose of the Right of First Refusal is to enable the 
> Association to ensure that prospective buyers understand the nature of 
> cohousing communities and the expectations of members of the Association. It 
> is not to limit the rights of the mortgage holders.  

The phrase that has stayed in our current still-under-discussion draft is:

> The Association's Right of First Refusal is not designed to take priority 
> over the rights of first mortgagees.

On whether the right of first refusal or the limitations on renting has cost us 
any mortgages or buyers — this would take a thorough investigation because both 
mortgage brokers and buyers make statements that are not correct. Banks won’t 
necessarily tell you. The whole thing seems to be blurry. Lots of rumors.

Every time (maybe 5-10 times)  I have tried to track down a mortgage broker to 
find out exactly what someone’s bank said, it has not produced definitive 
information — or even proof that this has ever happened when an owner or 
purchaser told me it had.

The best I’ve been able to get from a mortgage broker is some banks don’t like 
it, but there are so many others out there that if it is a good application, I 
just go to someone else.

The only absolute "no" is VA loans. Active duty soldiers have to be able to 
take deployments without restrictions. This means they need to be able to rent 
or sell quickly with little notice. We have discussed adding a provision to 
exempt people on active military duty from the rental limit of 3 years but have 
decided to put that in a policy and not the bylaws because we may want to 
specify other exemptions as well. 

The Right of First Refusal to purchase is considered an absolute requirement by 
many if not all of our members. But as I have said, I question how much it 
means since it is so hard to exercise. A community would have to have the funds 
set aside in advance to use them fast enough to stop a sale. And it is in all 
sellers' best interests not to delay sales.

Sharon
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Sharon Villines
Takoma Village Cohousing, Washington DC
http://www.takomavillage.org