Why Would they Think That the Lender Certification Questions Could Be Answered?
By: Helsing Admin
We have previously written about what the association’s responsibilities are on the sale or refinancing of a home, and have warned about the dangers of associations filling out Lender’s Certifications. However, for those associations that want to take the risk and fill these forms out (there is no reason to; see Homeowners Association Has No Duty to Disclose to Potential Buyer) you would think lenders would be appreciative. After all, for the most part the lender is asking the association to do the underwriter’s job for them. Basically, instead of the underwriter looking at the legally required disclosures and HOA documents, they ask the association to spend time researching for those answers.
If it was simply that easy, there would be no problem. However, lenders do not stick to the legally required disclosures and other issues for which the association might have knowledge or responsibility. Each lender has their own questions, and many of them either cannot be answered, or should not be answered. The sad part is they then tell the homeowner trying to resell or refinance “We can’t process the loan because your association refuses to answer the questions.” They don’t, however, mention that the question cannot be answered. In an attempt to educate, let’s look at those questions. The questions below all come from actual lender certifications.
Lender Certification Example Questions
How many units/lots are available for sale/under contract? Really? Have any of you ever seen a requirement that you let the association know your home is for sale? Did you miss that requirement that when you have a buyer under contract, you need to let a Board Member or your manager know? Of course not! Yet we have lenders regularly telling homeowners that it is not reasonable for an association not to know this and that is why they won’t finance!
Another lender certification – Does local zoning limit the activities permitted on the property? I assume they think that the association has some duty to call all the local regulatory agencies and see what current law is. Cities and counties have all kinds of limitations – and they enforce their laws, not the association. Your association has no duty to keep track of these issues, and is generally not going to raise your assessments to pay someone to research it regularly. if the lender wants to know the answer to this question, they certainly could call the city or county and check the current zoning restrictions – but thinking the association tracks this sort of information is simply naïve.
Are there any adverse environmental factors affecting the project or individual units? This is a state that requires in all commercial buildings those signs that say “WARNING: This area contains chemicals known to the State of California to cause cancer and birth defects or other reproductive harm.” Fortunately, residential construction does not display these signs, so who knows. However, their question is even broader than that because they don’t define an “adverse environmental factor.” In addition, the association typically does not have access to the individual units, and if it did it would have to hire someone with the prerequisite skills to determine if there is anything that is an “adverse environmental factor.” So, the correct answer is “unknown.” A yes answer usually can’t be supported, and a no answer has a liability for all the homeowners. Is this a trick question, or one designed for a future lawsuit – seems like one or the other, but fortunately most associations are not going to answer that one (unless they know for sure there is something bad going on).
Can the units be rebuilt to their current density in the event that they are partially or fully destroyed? I fully understand why a lender would want to know this. I even understand why a homeowner would want to know this before they purchase, and certainly if it changes after they purchased. However, this clearly is a legal question and a complex one at that. Because it is a legal question – the association can’t answer it as the association is not licensed to practice law. However, this one always makes me smile because while I can see why the lender would want this answered, I am not sure why they want it answered by some manager or Board member who is not qualified to research it and provide the answer. Seems like they would hire someone to do the research. Oh – that would cost money and they couldn’t give a no cost loan. Maybe it is just better (in their minds) to have the association on the blame line so they can sue all the homeowners in the community if they lose their asset in a fire! (Sorry, my cynicism sometimes shows in my old age – but it is really the only reason I can think of why they would want some unknown and unqualified person to “certify” something this important.)
I could provide even more silly questions, but hopefully you get the point. The loan officer is telling you this is “just a short little form they can fill out in just a few minutes.” Horsehockey – it is a form designed at best by folks who have no idea what associations are responsible for, and at worst by folks who want to make sure they have someone to sue for not doing the lender’s due diligence.
One good bit of news here: The underwriters know these questions and many more within the lender certification cannot be answered. None of these questions stops a loan and I can say that with certainty, because for years we have not answered these questions except to explain why we can’t answer, and loans are approved daily. The problem is with the loan officer who is either untrained or unmotivated – and in either case will not take the form with those “non-answers” explained and work it out with the underwriter. If you are in that position – you need to find a different loan officer (or perhaps a different lender).
While it may be frustrating to go through this process, buying into an association that does not treat these forms properly is buying into an association where you are going to get your fair share of the special assessment caused by someone else’s sloppy loan application.
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