By all outward appearances, state government in Illinois has ground to a complete halt, with all eyes focused on the Governor's "problem" and all the related fal-der-rah. Its hardly business as usual in Springfield, but not everything has ground to a halt. Several new bills have been introduced this week. That is not to say that they will be of benefit to we the people. Nonetheless, the cogs and gears are turning, and we are hoping for the best.
One such proposal comes from Rep. LaShawn Ford of Chicago's west side, who is himself a real estate broker and entrepreneur. He is the author of House Bill 155, introduced & referred to the Rules Committee Wednesday. It seeks to address one of the most common problems I am seeing in condominium resale transactions these days; the tension between many Declarations of Condominium and FHA loan guidelines.
Many Condo Declarations provide Associations with a "right of first refusal," which basically allows the association to thwart a proposed unit sale if the association is willing to purchase the unit from its owner on the same terms that an otherwise eligible buyer offered. Such rights are seldom, if ever, exercised but many associations view them as important safeguards to prevent below market value sales, or to exclude unqualified or otherwise undesirable people from buying into their communities. In my own experience over the last twenty three years, I have only known three associations to have ever exercised this right. It hardly ever happens.
That reality notwithstanding, FHA does not like this type of restriction. The US Department of Housing and Urban Development considers all rights of first refusal to be bad for owners; They somehow create an unreasonable restriction on owners and thereby diminish marketability of condo units. In HUD's view, this is such an unreasonable risk for buyers and lenders alike, they REFUSE to guaranty loans for condo units that are protected by these safeguards.
As a result, many buyers and sellers have seen their deals scuttled. FHA mortgage applications are denied wherever associations have that right of first refusal.
Lots of unhappy buyers and sellers. Lots of Associations have already, or are seriously considering spending exorbitant amounts of time and money to remove these restrictions.
Rep. Ford's proposes to amends the Illinois Condominium Property Act to PROHIBIT any association from being able to exercise the right of first refusal on the basis of the type of financing that a buyer seeks to use.
Lets look that one over again; HUD says it wont give loans on condo units that have a restriction. Rep. Ford says Associations shouldn't be allowed to use that restriction to prevent buyers from using HUD loans.
And that helps us how? Its not like associations will ever have opportunity to approve or disapprove these contracts if HUD financing is unavailable. The real solution is to either (a) convince HUD to change its guidelines; (b) legislate that HUD's guidelines cannot be enforced in Illinois (fat chance that); or to (c) legislate the elimination of all rights of first refusal.
Here's to the good gentleman for taking my call to discuss the bill today and for at least trying to address the problem.
One such proposal comes from Rep. LaShawn Ford of Chicago's west side, who is himself a real estate broker and entrepreneur. He is the author of House Bill 155, introduced & referred to the Rules Committee Wednesday. It seeks to address one of the most common problems I am seeing in condominium resale transactions these days; the tension between many Declarations of Condominium and FHA loan guidelines.
Many Condo Declarations provide Associations with a "right of first refusal," which basically allows the association to thwart a proposed unit sale if the association is willing to purchase the unit from its owner on the same terms that an otherwise eligible buyer offered. Such rights are seldom, if ever, exercised but many associations view them as important safeguards to prevent below market value sales, or to exclude unqualified or otherwise undesirable people from buying into their communities. In my own experience over the last twenty three years, I have only known three associations to have ever exercised this right. It hardly ever happens.
That reality notwithstanding, FHA does not like this type of restriction. The US Department of Housing and Urban Development considers all rights of first refusal to be bad for owners; They somehow create an unreasonable restriction on owners and thereby diminish marketability of condo units. In HUD's view, this is such an unreasonable risk for buyers and lenders alike, they REFUSE to guaranty loans for condo units that are protected by these safeguards.
As a result, many buyers and sellers have seen their deals scuttled. FHA mortgage applications are denied wherever associations have that right of first refusal.
Lots of unhappy buyers and sellers. Lots of Associations have already, or are seriously considering spending exorbitant amounts of time and money to remove these restrictions.
Rep. Ford's proposes to amends the Illinois Condominium Property Act to PROHIBIT any association from being able to exercise the right of first refusal on the basis of the type of financing that a buyer seeks to use.
Lets look that one over again; HUD says it wont give loans on condo units that have a restriction. Rep. Ford says Associations shouldn't be allowed to use that restriction to prevent buyers from using HUD loans.
And that helps us how? Its not like associations will ever have opportunity to approve or disapprove these contracts if HUD financing is unavailable. The real solution is to either (a) convince HUD to change its guidelines; (b) legislate that HUD's guidelines cannot be enforced in Illinois (fat chance that); or to (c) legislate the elimination of all rights of first refusal.
Here's to the good gentleman for taking my call to discuss the bill today and for at least trying to address the problem.
Comments
If this were a sale with a potential new owner I wouldn't have any problem telling them that the Board will not change the bylaws. However, this situation is with a current owner who wants to refinance. I don't expect that our association would ever exercise our Right of First Refusal but I am a bit uneasy with formally eliminating that right in our bylaws. Have you an opinion on that subject?
Also, if the condo association did decide to change the bylaws to acommodate FHA would it require an attorney or can we simply do it ourselves? Our association has little money and I would personally object to the assocation spending anything to benefit solving this one owner's problem.
Can you offer any advice on this matter?
In the context of a right of first refusal, let me ask you this: (a) has the association ever used that right and purchased a unit from an owner to "block" a sale that was proposed? and (b) given that you are a "relatively poor" association, do you think you would ever try to (or be able to do so?) if not, why would you oppose making a change? what would be different?
Also, if keeping the restriction eliminate sources of mortgage loans, that makes it much harder for anyone to be able to buy a unit in the building. that will slow down efforts to sell and likely force prices down (and consequently all the other owner's property values).
if that is a good thing, in the opinion of the unit owners, dont make a change. if you think it is better to make sales easier and to support propety values, then, perhaps it makes sense to make a change.
can you do this without a lawyer? well.... noone is going to make you use a lawyer and going without will save you money SHORT TERM. but, if you do it wrong, you could mess up the title to the condo; or do it wrong so that it has no legal effect.
penny saved, pound foolish? not for me to say.
You make some good points and I will use them at the upcoming board meeting.