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Cannot Sell Condos due to over 10% ownership

Started by JS10 • 14 replies • 2281 views

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JS10 (Massachusetts)
Posts: 8
Posted:
I am having a very hard time selling my 3 condos because Fannie Mae has a restriction on lenders not to lend money to a buyer of a condo if more than 10% of the units are owned by one person. In my case I own three units in a condominium that is only made of 3 units i.e. I own all of them and I rent all of them which is another problem for Fannie Mae condo regulations.

I bought the last one from a Fannie Mae Homepath last year and they sold it to me knowing that I own the two others units and that I am renting the two other units... It was foreclosed condo unit and they just wanted to get rid of it. In other word Fannie Mae scammed me because they certainly knew that per their own rules I cannot sell the unit I purchased from them. I only became aware of these insane rules this week when I decided to start selling my condos.

Being the 100% owner of the 3 units and also renting the 3 units make my 3 units condominium illegible for financing from Fannie Mae, Freddie Mac, and FHA, i.e. 95% of the condo loans available in the market.

Is there any solution for this major problem beside buyers paying cash or going for very expensive portfolio loans? Any help or advice is greatly appreciated. Thank you very much.
MelissaP1 (Alabama)
Posts: 13,836
Posted:
There are other loan options other than the federal backed FHA, Fannie Mae, and Freddie Mac who all use the same PUD form. Banks or mortgage companies would know these options. It is just harder to find qualified buyers to make purchases.

Former HOA President
JS10 (Massachusetts)
Posts: 8
Posted:
Thanks Melissa. That is exactly the problem, these other loans are so difficult to get. One lender told me that they can give the buyer what they call a "portfolio" loan with a minimum 20% down payment and only ARM interest rate for 5 years. I heard that some people are doing LLC out i.e. creating LLC and selling it to these LLC so their names will not be on all the units. However even if I do the LLC I am still stuck with the renting ratio as I rent all three units and that is over the allowed 49% renting to primary residence ratio...

It is insane... To save money I am thinking of dissolving the HOA to save money on the very expensive Master Condo insurance...
MelissaP1 (Alabama)
Posts: 13,836
Posted:
It may be difficult for you to dissolve in a condo situation. This is a risk people take when buying into a HOA. So you are not alone. It is how to get out of it for you. Maybe set up a rent toown type loan on a second mortgage. That way you can get rid of one property and lower your percentage of ownership. May take some time.
Former HOA President
JohnC46 (South Carolina)
Posts: 14,265
Posted:
JS

For clarification is this 3 unit condo a corporation of its own meaning not a part of a larger association? I know such is not uncommon especially in more urban, older law/regulation areas.

I know of someone that owns 1 condo in a two condo association building (in MA) and he is having horrible problems (financial and legal) with the other owner.

JS10 (Massachusetts)
Posts: 8
Posted:
John

The 3 Condo units Condominium is not part of a larger association. Now I am the sole owner of all these 3 condos and hence of all the condominium. I first purchased one unit for my primary resident then I purchased another unit that is foreclosed and finally I purchased the last one that was also foreclosed in 2012.
JS10 (Massachusetts)
Posts: 8
Posted:
Melissa

Even though I am 100% owner of the whole condominium is it difficult to dissolve the HOA? The law says if 75% of the owners decide to dissolve the HOA then it can be done and in this case I am the 100% owner. Or do you think the banks may object to the dissolution?

JohnC46 (South Carolina)
Posts: 14,265
Posted:
JS

I assume you could dissolve it but then how would you sell the units? Who would buy one without some type of agreement, association, vote, etc. Could not someone look backwards see the old association and be so concerned to walk away?

Maybe look at selling it in its entirety as a rental income property.

Maybe get an attorney well versed in FHA and look for the exceptions.

I have no answers for you.

JS10 (Massachusetts)
Posts: 8
Posted:
John

You are right. If I dissolve the HOA then I am stuck with basically and multi-family home. May be if in the future the crazy rules of Fannie Mae/Freddie Mac/FHA are gone then I convert it back to an HOA Condominium... Talk about a catch 22...
MelissaP1 (Alabama)
Posts: 13,836
Posted:
That is why I suggested removing yourself as "owner" of one of the units. If you only own 2 of those units, then the percentage would drop for you to possibly qualify for those other type loans. A rent to own situation may work well for you with one of your renters. This way they can purchase the home under different circumstances than the other type of loans. We had an owner who we had to foreclose on and remove. However, what they did is set up a second mortgage on their home and had a rent to own agreement with their tenant. They had title to the home but with the second mortgage once it was paid off, they could turn over that title to them. So you don't lose ownership with the second mortgage option but you can get the property paid off and title switched over. Although they were ripping off their tenant and later they lost in court to the tenant over this deal, it doesn't mean that it is all that "crooked". They just were in how they did it.

I think reducing your percentage of ownership should be the only option I can see for you to do. Although your in a pickle of finding a buyer to do just that. So if you can make a deal to get rid of a unit then you may get out of this. That is all I have to offer for now.
Former HOA President
JS10 (Massachusetts)
Posts: 8
Posted:
Melissa

Thank you for the advice. I have been reading about this rent-own option in the last two days and I have to investigate it further... The question is in the rent-own scenario the tenant would also have to work with a bank on this scenario and then we are again with catch 22 as the condo is not illegible according to Fannie Mae. Unless the rent-own scenario does not fall under Fannie Mae rules for Condominium...
PeterD3 (Florida)
Posts: 708
Posted:
Consult a local real estate attorney.
JS10 (Massachusetts)
Posts: 8
Posted:
Peter

Yes I will be doing so very soon...
MelissaP1 (Alabama)
Posts: 13,836
Posted:
From what I understand how these people were doing their rent to own was they were having the renter pay a bit more money a month toward the agreement. I think that is why they got the second mortgage. Your basically selling them the second mortgage well still having the first one. You will hold the title. Once that second mortgage is paid off or you feel like they paid enough, you transfer the title over to them. It is all about the transfer of that title.

You may even be able to put the title in another family member's name and sell the condo for a dollar. Not sure how that process works. However, it really depends on your financial situation and what you are comfortable with. If you need to sell, you need to reduce that ownership percentage or keep the condo's as pure rental investment property. Which I would lean toward doing for keeping an income coming in and being able to move somewhere else.
Former HOA President
JS10 (Massachusetts)
Posts: 8
Posted:
Melissa

Thank you for the info. I will be contacting a real estate lawyer very soon and I post what he tells me.

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