Houston Area Real Estate Guide

Right of First Refusal delay closing for FHA loan: Importance of having a good support team

I want share my experience in the hopes that it would prevent a headache for you in your future transactions.  It is so important to have a good support team.

DISCLAIMER: I am a real estate professional.  I am not a lawyer nor a title agent nor a loan processor nor an underwriter.  Please verify all information discussed with a professional and legal team within your state guidelines and your specific situation.  This is for discussion purposes only and provide a process on where to look.

In Houston Texas, condominimum associations define the rules and regulations for ownership, upkeep and membership participation of the condominium structure.  The bylaws often provide a first right of refusal where the HOA can based on guidelines allow or disallow purchase of a property by a buyer.

I am the buyer's agent for someone who is purchasing using an FHA loan. We are supposed to close on Monday.  Thursday before closing, the listing agent contacts me and asks where are the loan docs because he asked title for them.

According to FHA loan guidelines there cannot be a Right of First Refusal with discriminatory verbiage in the declarations.  The Right of First Refusal on the title commitment was the trigger to review the details of the declarations.  The reason for this is if FHA were to foreclose they would not want the HOA to dictate who they could sell the unit to.

Real Estate CSI Research

1. Contacted loan processor directly who tells me that there is right of first refusal that underwriting is having issue.
2. Talk to loan officer to find out possible solutions. Loan officer discuss with title company to remove condition in title commitment.
3. Loan officer says solutions are as follows
    a. Removed from the title commitment and need majority vote of the homeowners.  Our head govt underwriter said that if the HOA is going to waive their right in this case then it has to be a perpetual waiver to our unit and the document must be recorded. (COMPLICATED)
    b. Find a way to satisfy title's requirement of disclosing declaration in title commitment And satisfy FHA loan underwriting.
4. Agent does research looking at the past two years solds purchased with FHA loan to find selling agent contact information.  (FOUND one!)
5. Guess what I found out!  LOL.  The lender was the same company as my buyer's current lender, different loan officer closed at a sister title company (same title plants and examiners).  (How random is that? I need to buy a lottery ticket!)
6. The other loan officer, different title company had no issue closing the loan (same HOA guidelines, same FHA guidelines, same declaration in title).  (How did they do it?). One paragraph clause that says "for owner's title policy only".

Lessons Learned
1. Fix the discovery process earlier.  Talked with the loan officer to find out about potential gotchas .. their new condo questionnaire (helps with the lending ability of each condominium) didn't have the Right of First Refusal question on the list of questions.  Uggh!
2. Title company experience.  I had a quick conversation with another title company (not the closing one, nor the one that successfully closed the FHA loan with Right of First Refusal declaration.) to ask about this situation.  She said in commercial loans they do the one paragraph clause to satisfy both title's responsibility to disclose and lending's underwriting guidelines.
3. Great loan officer relationships.  Have the ability to research and access to key documents.
4. Cultivate your relationships today so that you can quickly resolve for the future.

Happy selling!

Joseph Ray Diosana
www.diosanagroup.com
"Helping Houston sell more for their property than traditional real estate methods."