There has been considerable information promulgated about FHA insured loans including reverse mortgages in Sun City AZ. Some of which is with merit and some of which is far from accurate. This is a very complex subject. Following is RCSC’s chronological account and status of FHA insured loans including reverse mortgages in Sun City AZ:
In mid-November 2016 the Recreation Centers of Sun City, Inc. (RCSC) started hearing from mortgage brokers, lending underwriters/originators and realtors regarding FHA loan application denials for Sun City AZ properties due to the free assumability language in 24 CFR 203.41. RCSC received all kinds of information, some conflicting. What appeared to be suddenly happening with no apparent cause was puzzling as there hasn’t been any HUD rule changes for FHA insured loans since 2009.
After considerable research and an attempt to find the specific source of the determination that created the issue for current and potential Sun City AZ homeowners, RCSC contacted Thomas Rose the Director of HUD in the Santa Ana Homeownership Center and sent a subsequent letter to Santa Ana HUD on January 26, 2017 stating that neither 24 CFR 203.41 nor 12 CFR 1228 has language that would prevent HUD from approving loans on properties in Sun City AZ. The following explains the justification for that claim:
Free assumability language in 24 CFR 203.41.(b) and 24 CFR 203.41.(c)(2) relies upon the definition of legal restrictions on conveyance that is outlined in 24 CFR 203.41.(a)(3). In reviewing each of the definition points in (a)(3)(i) through (a)(3)(vi) there is no language that can be construed to include the RCSC Preservation and Improvement Fee (PIF) as a legal restriction on conveyance. As a result, the use of 24 CFR 203.41 for denying FHA loan applications in Sun City AZ is inaccurate.
In addition, H.R. 3700 that passed U.S. Congress in July 2016 directly affects the application of 24 CFR 203.41 and requires that HUD harmonize its regulatory treatment with that of the FHFA for condominiums – specifically 12 CFR 1228 which grants RCSC’s Preservation and Improvement Fee (PIF) an exception provided this fee remain in the community and provide a direct benefit to the recreational property.
March 2017 a Sun City AZ home buyer happily reports that she found two lenders that would write FHA insured loans after being denied initially because the property she is purchasing is located in Sun City AZ.
March 2017 RCSC email communications with Santa Ana HUD were replied to include HUD Director of Processing and Underwriting Division believed to be in Washington DC.
March 2017 the RCSC Board of Directors (Board) considered amendments to the Corporate Bylaws and Board Policy Resolution No. 24 titled Preservation & Improvement Fee/Fund (BP24) which would modify the documents to not charge the PIF or administrative transfer fee to a lender pursuant to a foreclosure or deed-in-lieu of foreclosure. The Board majority decided it was too early in the process with HUD to pursue document changes.
May 2017 HUD was not open to relaxation of their position during the review process regarding Sun City AZ and therefore would not agree to provide any relief from denying FHA insured mortgages including reverse mortgages.
June 2017 RCSC spoke with Santa Ana HUD who indicated that a mortgagee letter addressing the issue for single family homes had been drafted. While the draft occurred sometime earlier in the year, it had been recently sent to the branch offices for comment. The comment period had been completed with the subsequent information going to Washington DC for the final draft and signing by the requisite party. It was indicated that the context of the draft mortgagee letter was positive for RCSC in that the language was comparable to 12 CFR 1228 that would allow FHA insured mortgages including reverse mortgages where there is a capital improvement fee (PIF), provided this fee remained in the community and a direct benefit to the property. RCSC also received verbal acknowledgement that 12 CFR 1228 was applicable to condominiums and as a result FHA insured loans would be available to that property type in Sun City AZ. To RCSC’s knowledge, that letter is still awaiting signature in Washington DC.
June 2017 Stephanie Smelnick FHA/HUD Field Director in Phoenix reports to SCHOA Board member that the condo moratorium was reviewed and lifted in April and that they no longer had an issue with PIF but that single family homes remained with FHA restrictions.
RCSC continued communication with Santa Ana HUD between June 2017 and April 2018, however, it did not produce any reportable results or verbal indications. There was never any timeframe provided for when HUD would respond or any estimated time HUD generally requires for a resolution. Any attempted communication with HUD in Washington DC resulted in referral back to Santa Ana HUD or no response at all.
April 2018 due to continuing delays with HUD’s mortgagee letter reportedly drafted and awaiting signature in Washington DC and/or harmonizing the underwriting guidelines for single family homes as 12 U.S.C.A § 1709 outlines for condominiums, the RCSC Board majority approved and sent HUD proposed language for the Bylaws and BP24 which would modify the documents to not charge the PIF or administrative transfer fee to a lender pursuant to a foreclosure or deed-in-lieu of foreclosure in an effort to resolve the problem. The Board majority is not in favor of making changes to its corporate documents without written acceptance by HUD confirming that such changes would result in current and potential Sun City AZ homeowners being able to obtain FHA insured loans including reverse mortgages. RCSC received verbal confirmation from Santa Ana HUD Director Thomas Rose that these documents were received and forwarded to Washington DC and that Washington DC would review and provide comments. Although RCSC has been verbally told we are not being ignored and that Santa Ana HUD is working with “headquarters” to get an appropriate response, no written response has been received to date. Verbal indications are that the language submitted is not sufficient as FHA is not a lender and HUD will not draft language samples that they would approve for the Board’s consideration.
May 2018 in a verbal conversation with Santa Ana, they hint that there are other considerations that could create problems for FHA insured mortgages including reverse mortgages in Sun City AZ. For example: 1) HUD does not like legal language that is binding and runs with the land which may obligate HUD, as well as subsequent purchasers from HUD to the terms of such language; and, 2) RCSC’s Facilities Agreement states that its lien for assessments and fees shall be subordinate only to the first mortgage or first deed on the property.
May 2018 details of the entire process with HUD provided to newly elected Congresswoman Debbie Lesko’s Deputy Director in Phoenix for review to see if there is any help that can be provided by Lesko in Washington DC to get some timely resolve for current and potential Sun City AZ homeowners.
June 2018 the RCSC Board considered new amendments to the Corporate Bylaws and BP24 which would modify the documents to not charge the PIF or administrative transfer fee to a lender or lender’s guarantor/insurer pursuant to a foreclosure, deed-in-lieu of foreclosure, assignment, or similar mechanism. This new wording would hopefully appease the verbal indication that previous wording submitted to HUD was not sufficient as FHA is not a lender. The Board majority opposed the proposed amendments as the Board felt the amendments would not solve the entire problem with HUD and did not uphold their fiduciary duty to the corporation nor the majority of RCSC’s Members. While the fluctuation in PIF collected from owners of foreclosed properties can vary greatly each year (2012=$636,000, 2017=$126,000, $375,000/year average from 2012 to 2017), the Board majority feels that their duty is to protect the assets of the corporation and do what benefits the majority of the membership.
June 2018 discussion with Santa Anna HUD confirmed that HUD’s general counsel is still reviewing each of the related issues with this being on the forefront of weekly calls at HUD. Because this has been referred to general counsel, Santa Anna HUD is cautious in their communications on the issue and any future HUD actions. HUD has not provided written determinations approving recent changes to governing documents by neighboring communities. It is up to each originating lender to make an approval determination in alignment with the policies in the HUD handbook. Any approval determinations have been the interpretation by lending originators that the language in the documents follows HUD handbook policies.