Do mortgage holders have right to prevent amending Covenants?

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

As you read this, does this mean that mortgage lenders must approve any changes to the declaration of covenants?

Are similar provisions common in other declarations?

Certain Amendments.

terminate the legal status of the project

MaryA1 (Arizona)
Posts: 7,043

Posted:

George,

My CCRs have the following article:

"Section 14. FHA/VA Approval. So long as there is a Class B (declarant) membership i the assn, the following actions shall require the prior wrtten approval of the FHA or the VA: annexation of additional properties, dedication for common areas or an amendment to this declaration." I think this is clause is put into the CCR to ensure the declarant complies with FHA & VA requirements in connection with loan programs.

In fact, the CCRs of my former assn have a similiar provision but it is prefaced with the following statement: "If this declaration has been initially approved by the FHA or the VA in connection with any loan programs made available by FHA or VA and any loans have been made which are insured or guaranteed by FHA or VA, then as long as there are any Class B memberships. . . ."

SusanW1 (Michigan)
Posts: 5,202

Posted:

"least seventy-five percent (75%) . . of the First Mortgagees of the Lots or their assigns"

George - I think that a "Mortgagee" is the first one on the deed. The Mortgager would be the mortgage company.

Kind of like a leassee and leassor thing.

MaryA1 (Arizona)
Posts: 7,043

Posted:

Quote:

Posted By SusanW1 on 09/08/2008 2:42 PM
"least seventy-five percent (75%) . . of the First Mortgagees of the Lots or their assigns"

George - I think that a "Mortgagee" is the first one on the deed. The Mortgager would be the mortgage company.

Kind of like a leassee and leassor thing.

Sorry, Susan; you've got it backwards. The "mortgagee" is the lender and the "mortgagor" or "mortgager" is the borrower. Same with "lessee" (the tenant) and "lessor" (the landlord).

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

Quote:

Posted By SusanW1 on 09/08/2008 2:42 PM
"least seventy-five percent (75%) . . of the First Mortgagees of the Lots or their assigns"

George - I think that a "Mortgagee" is the first one on the deed. The Mortgager would be the mortgage company.

Kind of like a leassee and leassor thing.

Common misunderstanding. The mortgagee is the person holding the mortgage, i.e. the bank. The mortgagor is the person mortgaging the property, i.e. the owner.

On the other hand, a lessee is the person living in the house, and a lessor is the owner.

If you ain't confused, you don't understand.

GeorgerwilliamsW (Indiana)
Posts: 975

Posted:

Quote:

Posted By MaryA1 on 09/08/2008 2:22 PM
George,

My CCRs have the following article:

"Section 14. FHA/VA Approval. So long as there is a Class B (declarant) membership i the assn, the following actions shall require the prior wrtten approval of the FHA or the VA: annexation of additional properties, dedication for common areas or an amendment to this declaration." I think this is clause is put into the CCR to ensure the declarant complies with FHA & VA requirements in connection with loan programs.

In fact, the CCRs of my former assn have a similiar provision but it is prefaced with the following statement: "If this declaration has been initially approved by the FHA or the VA in connection with any loan programs made available by FHA or VA and any loans have been made which are insured or guaranteed by FHA or VA, then as long as there are any Class B memberships. . . ."

Yup! Similar language was also in the declaration. I left it out to not make the posting overly complex.

In the declarations I have researched, I bypassed the sections about rights of first mortgage holders, since it was not germane to my interest. Now I realize that this declaration, in particular, really is going to be extremely difficult to legally amend.

If I understand it correctly, it appears as if no changes can be made without contacting all of the mortgage lenders. That would mean getting names and addresses from each homeowner or spending hours at the Recorder's office looking up mortgage liens--a daunting task.

Here is where I am going: it seems contrary to public policy or common sense to saddle property with decisions made by the developer decades ago and at some point, even centuries ago. The process of amendment is so onerous as to be nearly impossible. It is another example the incredibly poor work of the legal profession as evidenced in covenant declarations.

MaryA1 (Arizona)
Posts: 7,043

Posted:

George,

As I stated in my response, I think this clause is in the CCRS because FHA and VA do have certain restrictions in lending. If potential buyers are to have the opportunity to seek a mortgage through the FHA or the VA, then the declarant must comply with those restrictions. Notice my CCRs and those of my former assn do not require approval of the mortgage co, but only approval of FHA or VA. And, my former assn only requires that approval as long as the declarant is in control. The CCR's you posted are really what I would call "far-reaching" by stating all mortgagees must be notified. That would certainly be a mind boggling task!

GlenL (Ohio)
Posts: 5,491

Posted:

A version of that clause is in our documents as well. Most mortgage lenders typically "rubber stamp" their approval unless there is something in the amended documents that abrogates the mortgage lenders rights. If your Association doesn't have that information in your files, the lenders are on file with the county; we can access a copy of the mortgage on the counties web site.

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KirkW1 (Texas)
Posts: 1,665

Posted:

We have a similar provision, but with a significant difference. Instead of requiring the approval of mortgagees, it gives mortgagees a time frame to raise objections. I think there may also be language for having the mortgagee let the association know of its contact should they want notification.