The VA is Definitely Tougher on Condo Leasing Restrictions

small__2832610326In the past month, three of our condominium submissions have been approved by FHA and rejected by the VA – all for leasing restriction language.  Through at least the end of the year, when hired for FHA Condominium Project Approval, we are submitting for VA project approval if requested at no additional charge.  The VA submission package is similar to the FHA submission so we offer to do both.

[For those who don’t know, the VA requires condominium project approval prior to allowing VA financing to encumber any of the units in the project.]

The VA is tougher on leasing restrictions than is FHA, if you can believe that.  The rationale behind it makes sense though: the VA doesn’t want leasing restrictions to impede a Veteran’s** ability to lease his/her unit in the case of deployment.  Therefore, maximum leasing restrictions are reviewed more closely.

Maximum number of leases cannot be established because once this number or percentage is met, no other units may be leased.  It’s not difficult to see that this could impede a Veteran from leasing his/her unit.

Must use a Board-approved lease form or the Board must approve the form on which the lease is written.  This is not allowed because the Board could require a form that is not in compliance with other VA requirements or the Board could reject the form the Veteran has used.

Third-party approval of tenants is also not allowed by FHA.  If the association/Board has the authority to approve or reject potential tenants, most of the time the condominium is not approvable by either the VA or FHA.

Third-party approval of modifications to leases poses a potential restriction for the Veteran.  What if the Veteran wishes to extend or shorten the lease according to changes in his/her deployment period and the Board doesn’t allow it?

Maximum lease period can be an issue for a Veteran if the deployment extends beyond the maximum established lease period.  Fortunately, though, we don’t see this very often.

Often, developers and Boards place the above provisions in place in an attempt to protect the community.  However, in doing so, Veterans are prevented from using their VA benefits to purchase units in the community.

One way to potentially circumvent the above and still obtain a project approval is to include an exception for units that are encumbered with VA financing.  From what we have been told by the VA, this should be allowable in most cases.

**NOTE: the term “Veteran” is being used to conserve space and is meant to represent Veterans, active service members and anyone who qualifies for VA home loan financing.

Condo Unit Takes Almost a Year to Sell

fotomineCindy Jones is a Real Estate Agent with Integrity Real Estate Group in Northern Virginia.  She is an avid blogger who I follow and consistently read on  Recently, she published an article about a condominium unit listing of hers that took nearly a year to sell, primarily because the association was not approved with FHA.  Below is an excerpt from her article:

Yep, It Took Almost a Year to Sell

But does that tell the entire story of the listing?

Sure when we hit the market the condo was staged and looked cute as could be.  We even got an offer right off the bat but couldn’t get it ratified.  The condo association had let their FHA approval lapse and weren’t sure they were going to renew.  Despite trying to get the buyer to go with another loan option they moved on.

Even with a significant number of showings the lack of FHA financing was the common obstacle for buyers.  As the condo sat there were moments when the owner was going to throw in the towel and put it up for rent.  After multiple calls with the association by my seller, other owners and pressure from multiple listing agents, the FHA approval was reinstated for the condos.

Still we persevered and after 321 days on the market the condo finally received an offer that stuck.  We had to laugh, through the frustration and tears that in the end it sold with a VA loan.  Really all the FHA drama and that’s what happens!

Sure I’d love to say “Listed and Sold at full price in 7 Days” but the reality is not all listings do.  I won’t bury the lead and tell a prospective seller anything but the truth.  Some listings are more of a challenge than others but I’ll still do everything it takes to get your listing sold whether it sells in one day or one year.

It was fortunate that the association was approved with the VA!  Otherwise, that would have further delayed the sale.

In speaking with Cindy, she said that there were 5 or 6 offers from FHA buyers during the marketing time.  This is not uncommon from our experience.  We receive calls on a regular basis from unit owners who are trying to sell and can’t because the project is not FHA-approved.  In doing research, we consistently find that units in FHA-approved projects have a far better chance of selling than those in projects that are not approved.