Tighter lending guidelines have made it tough, in many cases, for the average Chicago Homebuyer to procure mortgage financing to buy a home. Often, however, the task of financing a condominium or townhome in Chicago is even more difficult.
As our Team has found in recent months, many condo buildings, in average to more affluent areas, harbor multiple properties whose owners are in financial distress. Owners behind in their mortgage payments are often behind in their payment of monthly homeowner assessments as well. If too many units are in arrears, lenders may refuse to offer a mortgage against any unit in the same building.
As outlined by Chicago Tribune Reporter Mark Pearlstein, guidelines for both low-down-payment FHA Loans, and Conventional Loans backed by Federal Mortgage Guarantor and Investor Fannie Mae, require that no more than 15% of units be more than 30 days late in their assessment payments.
For smaller buildings, like the two-bedroom ground floor unit, in a ten-unit building, we currently have under contract in the Rogers Park Neighborhood of Chicago, as few as two units behind in their assessments can potentially scuttle an in-process deal.
Right now, one unit in the building is behind - but another is a couple of weeks late on their last month's assessment already, and it is not likely they will pay current by the end of the month.
So what happens to an otherwise-solid deal due to this unplanned-for turn of events? Well . . . it could get derailed!
Often, underwriting guidelines are not flexible - and, if they are not met, they are not met! The loan gets disapproved, not on the merits of the condo buyer, but rather the strength of the building itself. Seems like common sense, but, if you are a seller trying to avoid a distress-sale situation yourself, it seems like just another unsurmountable obstacle!
We've encountered other situations where the association has filed suit for back assessments, plus fines and legal fees, against a tardy unit owner. Other association suits attempt to obtain physical possession of the unit, in order to rent it out use the rent to recoup lost assessment revenue.
Again, according to FHA and Conventional Guidelines, such a suit must generally be satisfied of settled at or before closing in order for the unit buyer - or, for that matter, any buyer in the complex or building, to receive loan approval.
Other stumbling blocks to approval - inadequate building reserves, pending special assessments, or long-term capital repair or improvement projects, even if they are already in place.
Here in the North and Northwest Side of Chicago Neighborhoods we serve with great frequency, any impediment to financing approval can quickly kill a deal, and add more distressed inventory to the building. This added inventory, per the guidelines, has no chance of being sold.
SNOWBALL, it appears!
This is happening with greater frequency in condo buildings we see and list. It further delays Real Estate Market Recovery, and keeps other, potentially qualified new buyers from closing and taking possession of their new condo homes.
Perhaps this is one of several reasons why Chicago Condominium Sales, especially in the outlying, less-expensive Chicago Neighborhoods, continues very sluggish.
Please see our post today via BlogChicagoHomes.com.
DEAN MOSS & DEAN'S TEAM CHICAGO