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Crown Harbor Homeowner Association

Veterans Administration Mortgage Loans

Crown Harbor Homeowner Association is currently considering getting qualified for VA mortgage loans. Existing owners and potential buyers have served our country; however, to be compliant with VA mortgage policies, a change would be required to the CC&Rs.

limit

Rental Limit

  • The current limitation preventing VA mortgage approval is the Crown Harbor CC&Rs that limit rentals to 15% of the units.
  • With 76 units, that is 11 rentals.
  • When the maximum number of rental units is reached, additional rental requests are placed on a waiting list.
  • Owners on the waiting list have to wait until an existing tenant vacates to be moved from the waiting list to the active list.
  • The Owner of the previously rented unit gets placed at the end of the waiting list if the Owner wishes to rent to a new tenant.
  • This is all documented in the CC&Rs and documented on the rentals page.
loan

VA Mortgage Loan Requirement

  • To encourage banks to make loans at a low interest rate, the VA has a stipulation in its process that a bank can rent out a unit in the event of a foreclosure on a veteran.
  • The Crown Harbor CC&Rs prohibit this assurance for the lending bank.
  • While it is true that Crown Harbor may not be at rental capacity immediately after a foreclosure, and the unit could indeed be rented, banks are not willing to take any chances given the low interest rate associated with the VA loan.
change

Proposed CC&R Change

  • Rather than change the Crown Harbor CC&Rs to lift the rental restriction, which would have the potential of converting the predominantly owner-occupied community into a rental community, the suggested form of CC&R modification was to add a clause to:

    grant lending institutions a one-year waver on the rental restriction in the event of a foreclosure on a VA loan.
  • This change would have required both a legal opinion and a vote of the Association members. The clause would not have opened up the percentage of units rented. In effect, the lender would have had the option of renting the unit regardless of the 15% restriction.

    • One opinion was that this was a safe clause to add as most lenders don't want to own nor rent a unit. They would want to unload it as quickly as possible. They would only exercise this clause for the interim time between the foreclosure and eviction and the time they sell the unit.
    • A dissenting opinion was that this clause would have given preferential treatment to lenders over existing Owners. It was unclear if the clause could be limited to VA mortgages or would it have to protect all lenders? FHA loans require that 50% of the units be owner-occupied. Realistically there would never be enough foreclosed units for the association to exceed this threshold, but conceptually, the two loan types are at odds.
  • The additional clause would have been in the interest of all Owners, as this change to the CC&Rs would have been one more thing that would make buying a home in Crown Harbor attractive.

impact

Prediction of Limited Impact

  • The current VA maximum loan amount for 2016 is $417,000.
  • Crown Harbor units, in open sale, generally go between $650K to nearly $1M.
  • A typical VA buyer would need to put down about 50-65% of the market/sale price to get the financed portion below the VA maximum to buy a home in Crown Harbor. Basically, Joe Vet off the street or currently in service could not afford to buy in Crown Harbor because the prices are too high for a VA guaranteed loan; however, some veterans who are transitioning from an existing home, or existing veteran owners who wish to refinance, could get lower interest rates through the VA if the clause had been added.
plan

Board Decision Not to Pursue

  • This item was discussed at the September 2016 board meeting.
  • If a motion to add a clause to the CC&Rs had been approved, the language would have to be written by the Associa lawyers. The Associa lawyers charge $350 per hour.
  • The Associa lawyers would have had to ensure with the VA that the additional clause satisfies their restriction so Crown Harbor could be approved.
  • The change to the CC&Rs would then have been put to a community vote.
  • This would have been done as part of the annual voting process in March 2017.
  • The motion to pursue this did not pass.

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