Closing Chicago Real Estate

FHA delays implementation of new lending rules relating to condominium purchases. Saw this nugget changing the effective date to November 2, 2009 from October 1, 2009. Mike Wasserman had a good initial post on the rule changes. Short-term the delay likely helps some of the newer condo developments since the new rules require a higher percentage of units to be sold before the building is FHA elgible. Yet for the older buildings, I’m ready to kiss that right-of-first-refusal restriction goodbye.

Housing trouble down at Millikin in Decatur.  The small liberal arts school was charged with violating the Fair Housing Act for refusing to allow a blind student live in the dorms with her guide dog. It’s just an allegation at this point but I was suprised to see Millikin mentioned in a HUD press release.

Finally an interesting panoply of housng facts released by the Census Bureau regarding the state of U.S. housing…

Housing

• California homeowners with mortgages ($2,384) had the highest median housing costs in the nation. New Jersey had the second highest median housing cost ($2,360).  Hawaii ($2,265) and the District of Columbia ($2,218) followed, but were not significantly different from each other.  Rounding out the top six were Connecticut ($2,108) and Massachusetts ($2,105), which also were not significantly different from each other.
  

• Median selected monthly housing costs for homeowners with one or more mortgages, after adjusting for inflation, rose between 2007 and 2008 for nine states and declined for eight states. Five states that experienced increases were in the West (Hawaii, Montana, Utah, Washington, and Wyoming), three were in the Northeast (Connecticut, Maryland, and Pennsylvania), and one was in the South (Mississippi).
  

• Five states that experienced declines were in the South (Florida, North Carolina, South Carolina, Texas, and West Virginia) and three were in the Midwest (Michigan, Missouri, and Ohio). The average decrease in the median selected monthly housing costs for homeowners with mortgages in the United States was 0.3 percent between 2007 and 2008.
  

• The percent change in median home values decreased in the United States (-2.0 percent) and in 22 states between 2007 and 2008 – five in the Northeast (Massachusetts, Rhode Island, New Jersey, Connecticut, and New Hampshire); four in the South (Florida, Maryland, West Virginia, and Georgia); eight in the Midwest (Michigan, Minnesota, Ohio, Indiana, Missouri, Iowa, Wisconsin, and Illinois); and five in the West (Nevada, California, Arizona, Hawaii, and Washington). Although the rate of decline was not significantly different from each other, two states showed larger percentage declines than the other 48 states and the District of Columbia: Nevada (16.0 percent) and California (15.5 percent). Florida (8.6 percent) ranked third. (See: subject table S2506)
  

• States that experienced increases were Texas, Utah, Wyoming, Oregon, Pennsylvania, Tennessee, and North Carolina. Of those states, no one state had a rate of increase that was significantly higher than the other six.

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Comments (3) Oct 01 2009

Some great posts here, here, and a comment from the wasserblawg regarding that ever moving target that is FHA insured financing. It seems times they are a-changin’ both in Springfield and Washington on this issue.

First, down at the General Assembly while they haven’t been passing a budget, both the House and Senate have approved HB0155 regarding condominium associations exercising their right of first refusal. It’s awaiting action from the Governor. Here’s a synopsis of the bill:

Amends the Condominium Property Act. Provides that in the event of a sale of a condominium unit by a unit owner, no condominium association shall exercise any right of refusal, option to purchase, or right to disapprove the sale, on the basis of the type of financing used by the purchaser.

Sadly, my analysis of this bill is that it’s worthless. Why? The reality is that condo associations NEVER exercise their rights of first refusal even if the most disagreeable potential buyer were set to move in or surely based on financing type. Why? What association wants to spend a few hundred thousand dollars to own a unit that provides no benefit to the general membership? Never happens!

The FHA mortgage letter seems like more of a mixed bag…looking negative in the short -term but good longer-term for condo buyers/sellers & associations. Take a look at Mike’s post for the nitty-gritty but my opinion is based on the elimination of the individual unit FHA “spot” approvals will surely hinder some buyers in the near-term. BUT, the elimination of the right of first refusal restrictions is a big positive going forward for buildings/associations who are on the ball and get their buildings/projects FHA approved.

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Comments (0) Jun 20 2009

So I had a shocking experience at a unit owner meeting of the condominium association where I live regarding amending our declaration to eliminate the association’s right of first refusal which practically would allow FHA borrowers to purchase units in our building. Here’s my previous post regarding a memo I put together on the issue.

Unfortunately we didn’t get enough votes to amend the declaration. Such is life, you win some and you lose some and I’ll do a better job getting the word out for the next go-round.

But what was absolutely eye-opening about the tone of the meeting and some of the comments made by fellow unit owners was the absolute ignorance about FHA loans. Among many older residents apparently FHA loans are only for poor, minorities. Sadly, I heard more than one statement to the effect of “we don’t want those kind of people living there.” I clearly heard code for we don’t want minorities in our building. And without even touching the history of racism in the United States what’s unfortunate is that perception is just plain wrong. The reality is that the FHA program is a real go-to loan option these days for younger, relatively high-income earners who simply don’t have huge savings in place yet.

Good luck amending your declaration!!

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Comments (1) Jun 17 2009

Thought I’d post a note I sent around my condominium association…we’re trying to amend our declaration right now and I’d guess many, many other associations are in the same boat.

I wanted to make sure everyone is clear about the critical importance of our Association’s amending Article 7 of our declaration to remove the Association’s right of first refusal. I would suggest that making this amendment immediately increases the value of our units simply because making the change opens the doors to potential buyers who were previously shutout and are shutout from purchasing into many other condominium associations.

As a real estate attorney who has at varying times represented 90 different condominium, townhome, and homeowners associations and hundreds of people buying residential real estate, I have NEVER seen an association exercise its right of first refusal and actually buy a unit. A good example being our Association’s consideration in purchasing the first floor unit last fall. Few associations want to spend hundreds of thousands of dollars to own units that they have no use for and simultaneously give up that unit’s assessment income. So practically, the right of first refusal currently contained in our Association’s declaration is a power we will almost certainly never use.

The Federal Housing Administration (FHA) Financing Issue

The key issue: If a condominium association’s declaration contains a right of first refusal, potential buyers seeking an FHA-insured mortgage loan cannot purchase into that association (like ours currently).

This issue has risen in importance recently due to the overall economic downturn, the so-called ‘mortgage meltdown,’ and the general tightening of mortgage lending requirements. We didn’t hear about this issue prior to this year much because mortgage dollars were so loose and nearly anyone could get 100% financing from any number of private banks. FHA insured mortgages (96.5% mortgages) have slightly more stringent appraisal standards so people didn’t hassle with them because it was so easy to get mortgages elsewhere. However, what has changed in the last year or so is that money has dried up so now potential homebuyers are left with two primary mortgage options: Coming up with a 20% down payment for a traditional 80% mortgage loan OR utilizing the 96.5% FHA insured mortgages (the government has nothing to do with this lending, it only insures a private banks mortgage making it a better risk for the bank). And in many affordable buildings like ours that are attractive to first-time homebuyers those sorts of people often are younger with good incomes but little in the way of savings. In my experience approximately 25% of the real estate purchases contracts I have been reviewing over recent months include FHA financing. If we don’t amend our declaration we’re eliminating that huge group of potential buyers and consequently hindering the value of all units.

I did not propose this declaration change but I do strongly support it. Contact me to discuss.

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Comments (0) Jun 02 2009