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Is MC required for loan approval?

Started by KarenT ā€¢ 16 replies ā€¢ 1341 views

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KarenT (Washington)
Posts: 250
Posted:
Our HOA just requested that our property management firm be terminated for several reasons, the most recent being that we need to save money for attorney fees and collection costs - we have 4 out of 12 delinquent and 2 in foreclosure.
The property management agreement called for 60 days notice, however, when we sent the written request to terminate, they verbally agreed to terminate as of August 31, 2011 because of all the issues we are having in the subdivison. We moved forward to turn it over to a bookkeeper on September 1st and we've been trying for 2 days to get ahold of the property management firm to confirm how to handle the transition. We finally got ahold of the property mgmt firm today and this is what she told us. "A letter is going out today indicating we will be continuing for 60 days because of one homeowner and her realtor". Evidently they called the property mgmt firm (not the Board) and said that the sale of her home will not go thru unless the association is being managed by a property management firm. As far as I know, this is not a true statement - no lender requires that an association be managed by a property managment firm in order the the loan to go thru.

We've had issues with the property management firm not collecting amounts due, interest, late fees, paying bills on time and basically undermining the Board - that is the other reason why we are terminating them. All the other homeowners just want to complain, but no one wants to step up and do the work. Recently they knew one homeowner was 2 months behind on dues - didn't inform us they were behind but requested that the HOA reimburse them for water! The Board was not very happy to reimburse a delinquent homeowner!

Sorry for the rant! Your thoughts?
RichardP13 (California)
Posts: 1,767
Posted:
Karen

There may be langauage in the CCR' or Bylaws requiring the Association be managed professionally or if they terminate, must be with the written approval of a mortgagees holding a certian % of 1st mortgages.
PetunkaM (Florida)
Posts: 1,009
Posted:
A letter is going out today indicating we will be continuing for 60 days because of one homeowner and her realtor". Evidently they called the property mgmt firm (not the Board) and said that the sale of her home will not go thru unless the association is being managed by a property management firm. As far as I know, this is not a true statement - no lender requires that an association be managed by a property managment firm in order the the loan to go thru.

Kathy,
This should be easy to check out. Canā€™t you phone the real estate agent who listed the property to find out if this is truly the case?
PetunkaM (Florida)
Posts: 1,009
Posted:
Oops, sorry Karen..
KarenT (Washington)
Posts: 250
Posted:
Quote:
Posted By RichardP13 on 08/24/2011 3:55 PM
Karen

There may be langauage in the CCR' or Bylaws requiring the Association be managed professionally or if they terminate, must be with the written approval of a mortgagees holding a certian % of 1st mortgages.

No there is nothing in our CCR's or bylaws requiring "professional management".
KarenT (Washington)
Posts: 250
Posted:
Quote:
Posted By PetunkaM on 08/24/2011 4:06 PM
A letter is going out today indicating we will be continuing for 60 days because of one homeowner and her realtor". Evidently they called the property mgmt firm (not the Board) and said that the sale of her home will not go thru unless the association is being managed by a property management firm. As far as I know, this is not a true statement - no lender requires that an association be managed by a property managment firm in order the the loan to go thru.

Kathy,
This should be easy to check out. Canā€™t you phone the real estate agent who listed the property to find out if this is truly the case?

This homeowner and realtor will not communicate with the Board. This homeowner is even a board member and refuses to come to board meetings. We thought with her moving we would just let it go, but now this issue has come up.

The letter from the managment company arrived in the mail yesterday, sent to all homeowners and says "I rec'd notice in the mail on August ..... and also by phone from ... (President of HOA) that the HOA could no longer afford my services. Per my managment agreement, I require 60 days advance notice of cancellation of my contract. Therefore I will continue to manage the ...HOA until October .... I am concerned with the decisions currently being made by the board. I believe they are not in the best interest of all homeowners. I have been contacted by several homeowners directly and they have concerns also. I would suggest a meeting with all homeowners before I hand over the funds/paperwork to make sure everyone is aware of the situation and condition of the HOA. There are severall inconstancies (yes that is how it was spelled) from what I heard from the board and what homeowners are telling me. Please note I am sending copies of this letter to all homeowners."

First of all the HOA did have a meeting specifically about this matter right after the MC agreed to terminate on August 31st. Only 3 homeowners attended. The homeowner who is on the board even drove into the subdivison while the meeting was in progress - it was held in our common area - and drove right by into her garage.

The reason the MC services are being terminated is because they do not pass on critical information to the Board about delinquencies to the Board, do not charge fines, late charges and fees per our collection policy, have failed to pay several bills on time, have sent out wrong notices to the wrong homeowners, etc.....

The issue is these homeowners refuse to communicate with the Board and instead complain to the MC.
PetunkaM (Florida)
Posts: 1,009
Posted:
We've had issues with the property management firm not collecting amounts due, interest, late fees, paying bills on time and basically undermining the Board [Karen]

Karen,

ā€˜Undermining the boardā€™ is an understatement! I cannot quite tell if your HOA is only 12 members and four are delinquent? And, those four delinquent owners refuse to communicate with the board?

Regardless, even a verbal agreement is legally binding and that MC lady does not have any intention to honor it. I also think the board member who is selling her unit should resign from the board or the board should remove her ASAP. 'Letting it go' may not work in your best interest.

While one cannot determine what is really going on I would suggest the board writes a factual letter to the MC stating that an agreement has been reached with the MC to terminate the contract as of Aug 31. I would also state that she has no authority to overrule the board decisions on any issues. Do not, at this time, complain about her being incompetent. That could open another Pandora box. I would copy your attorney, if you have one. (Do not think you should copy the membership.) If you do not have an attorney please contact one. Such consultation should not cost more than $300.

I would also call the bod meeting asap to remove the bod member who is selling her unit and replace her with someone else (check your docs if there is any special process required). At the same meeting, I would discuss the letter received by the MC, vote to terminate the MC as originally agreed, and etc. Make sure the decision to proceed is documented in the minutes.
SusanW1 (Michigan)
Posts: 5,202
Posted:
Karen - check out new FHA requirements for loan approval. I understand that a management company is required for the HOA in order to approve loans.

BruceF1 (Connecticut)
Posts: 2,535
Posted:
Quote:
Posted By PetunkaM on 08/25/2011 7:46 AM
I would also call the bod meeting asap to remove the bod member who is selling her unit and replace her with someone else (check your docs if there is any special process required.

In most situations I am aware of, the BOD does not have the authority to remove a board member. Usually, if the association membership elects the members of the BOD, only the association membership can remove a member of the BOD; not the BOD itself. This is also true according to accepted parliamentary procedure. Only the body (or person) that elects (or appoints) someone can remove that person, unless the bylaws specify otherwise.
BradP (Kansas)
Posts: 2,640
Posted:
Karen:

The management company works at the pleasure of the board correct? sending out a letter like that in my opinion was highly inappropriate. There sounds like there are many issues that need to be tackled but here is my take.

1. Relieve the MC of their duties at the verbally agreed date of August 31st. Demand they hand over the documents and move on with your business and getting the MC's replacement on board.

2. If the MC comes back at you and refuses to go quietly then you have a decision to make, is another 30 days worth the wait to make them go away or do you stand your ground and make it a legal battle.

3. I don't know what your monthly fee is to them but another option is to offer to buy them out. If they don't agree to that then something fishy is going on.
BruceF1 (Connecticut)
Posts: 2,535
Posted:
Karen,

As Susan said, it is very possible that mortgagees be notified and give their permission before an HOA chooses to be self-managed. I know for a fact that my mortgage contract states that.

That doesn't mean that you can't terminate your contract with your present MC. You would just need to negotiate a new contract with a new MC that can take over immediately after the present MC ceases business with you.

I suggest you speak with the personnel at a few banks and mortgage companies to see if is true that HOAs must be professionally managed for buyers to obtain loans. I'm sure they would be happy to answer your questions.
PetunkaM (Florida)
Posts: 1,009
Posted:
In most situations I am aware of, the BOD does not have the authority to remove a board member. Usually, if the association membership elects the members of the BOD, only the association membership can remove a member of the BOD; not the BOD itself. This is also true according to accepted parliamentary procedure. (Bruce)

Bruce,

I agree 99%. However there could be exceptions and this is why I suggested to check the docs: the BOD can remove a director if he/she is delinquent for XX days; or if the board member knowingly fails to comply with the provisions of the documents. The fact that the board member in question never attends any meetings and refuses to communicate with the board members could fall into that category (gray area). I do however believe that it would be easier for everyone, if she resigns.
PetunkaM (Florida)
Posts: 1,009
Posted:
Karen - check out new FHA requirements for loan approval. I understand that a management company is required for the HOA in order to approve loans. (Susan)

I just talked to our resident real estate agent and having a management company is not a requirement he is aware of. However, one of the key requirements is that no more than 15% of unit owners can be delinquent. Now, Kathy stated 4 units are delinquent and two are in foreclosure. What % does it represent? There are also other requirement such as 10% of the operating budget must go to reserves, the % of rental units, etc.
PetunkaM (Florida)
Posts: 1,009
Posted:
This homeowner and realtor will not communicate with the Board. This homeowner is even a board member and refuses to come to board meetings. .. the sale of her home will not go thru unless the association is being managed by a property management firm. [Karen]

This statement concerns me the most. Why would the real estate agent refuse to talk to the Board? Who is filling out the loan application? The Management company? BUT who is ultimately responsible? The BOD. Is there any possibility the board member + real estate agent + the management company are cooking up the info? I have seen kickbacks to management companies before. Something may be going on.. .

KarenT (Washington)
Posts: 250
Posted:
Quote:
Posted By PetunkaM on 08/25/2011 9:47 AM
This homeowner and realtor will not communicate with the Board. This homeowner is even a board member and refuses to come to board meetings. .. the sale of her home will not go thru unless the association is being managed by a property management firm. [Karen]

This statement concerns me the most. Why would the real estate agent refuse to talk to the Board? Who is filling out the loan application? The Management company? BUT who is ultimately responsible? The BOD. Is there any possibility the board member + real estate agent + the management company are cooking up the info? I have seen kickbacks to management companies before. Something may be going on.. .


Oh, yes we believe something is definitely going on. The realtor is a very good friend of the homeowner and rumor is that the HOA is holding up the sale. We didn't even know it had sold until the moving van was in the drive-way. We e-mailed the board member (the one selling the house) and asked when the closing was and never ever rec'd a response. The only way we knew was from asking the management company who said "oh ya she sent a note with her dues payments saying it would close on the 24th" Well now we understand that it is delayed for some reason because it's a VA loan - this info came from the broker who the realtor works for.

Our by-laws give the remaining BOD members the right to remove any Board member. We just didn't want to go down this path.
PetunkaM (Florida)
Posts: 1,009
Posted:
Well now we understand that it is delayed for some reason because it's a VA loan - this info came from the broker who the realtor works for. {Karen]

Karen,

have you asked the broker if the MC signed any papers on the VA loan on behalf of your Associations? I would send a letter to the broker with a copy to the real estate agent and the Management company asking just that question. Not that you would like to stop the sale but the Board should/must really know. The Management company is not required for loan approval and should not do so without your authorization. No doubt the broker knows that.
KarenT (Washington)
Posts: 250
Posted:
Quote:
Posted By PetunkaM on 08/25/2011 1:10 PM
Well now we understand that it is delayed for some reason because it's a VA loan - this info came from the broker who the realtor works for. {Karen]

Karen,

have you asked the broker if the MC signed any papers on the VA loan on behalf of your Associations? I would send a letter to the broker with a copy to the real estate agent and the Management company asking just that question. Not that you would like to stop the sale but the Board should/must really know. The Management company is not required for loan approval and should not do so without your authorization. No doubt the broker knows that.

Yes, we have asked that question to the broker and are waiting to hear something this evening.

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