Should Lenders be able to restrict Loans to Solvent HOA's?

Ok, this week I came across this issue and here's the situation:

One of my clients wants to purchase a condominium in a complex where his son lives. He wants to use the condo as his second residence when he comes to visit and he has a sizable down payment. My client also has a great retirement income from being in the military.

Unfortunately, homeowners in the complex are behind on their mandatory HOA dues and the lender uses a threshold of 15% above which they'll not lend. My client has contacted a number of lenders with the same result.

I live in a great neighborhood with a voluntary HOA that is unaffected by such lenders prohibitions, but it made me think what the effect of their lending requirement has on neighborhoods with mandatory HOA's.

In a tumultous real estate market like we have, it is increasingly common to have homeowners in arrears on the dues. In addition, I understand that HOA dues are likely the first place where homeowners can - and do - postpone payment while they wait for their situation to improve. Delay long enough and the homeowner can and will be foreclosed upon by the HOA.

Unfortunately, prohibiting lending in these neighborhoods results in a cascading effect in both home/condo prices and HOA participation rates. Buyers can't purchase because of the lenders practices and HOA participation rates can't improve either. Prices continue to fall accordingly. While the practice can and does affect both low and high priced communities, entry level and poorer communities are hurt most because they constitute a higher fraction of the housing market.

My suggestion: lenders should NOT be allowed to use HOA participation as a criteria in their lending.

In a perfect world, I believe HOA's should be voluntary (or, at least that portion of the dues that supports administrative overhead should be). In my own neighborhood governed by unpaid homeowners, HOA dues pays to maintain common areas and cut grass. The amount of the dues is kept at 10% what mandatory HOA's charge because it goes directly to the bottom line - actual expenses (rather than administrative costs).

What happened to buy low, sell high?

I know it's an unusual economy, but buying a home in this economy is something no one should take lightheartedly. The turn in the housing market will happen, but that isn't necessarily the reason to buy a home. The reason to purchase a home, especially in the greater Charlotte region, is because you care about your quality of life. Otherwise, there are definitely some better choices: Laguna Beach has a better view - the nightlife in Greenwich Village has a better "beat" - the Cayman Island waters are cleaner - Steamboat Springs has better skiing.

Yes, homes are investments. That is among the absolutes in finance. But if the only reason to buy a home was for a return, we'd all be buying mobile home parks (they've got really great returns).

Instead, you consider the Carolinas - like I did - because there's some compelling reason to be here. For me, a Southern California native, it was the quality of life: great people, modest home prices, perfect weather, well-educated population, small-town feel in the largest Carolina city. Of course, there's more. For some, it'll be a relative. For another, it might be the view from one of those high-rise Uptown condominiums. It could be that neighborhood park, tennis courts, bike trail, or University.

Yes, you could rent someone else's home ... make their payment ... let them enjoy the return your payment offers.

Or, you could consider making the move now while the Obama administration is offering the $8,000 or $6,500 tax credit. You could also take advantage of the 20% commission rebate I'm currently offering my clients.

The choice is yours: put your money in the bank and die with cash there or put your money in real estate where my parents, yours, and each of our forefathers (and our children) will enjoy the pride and joy of home ownership.

If I can help you on your real estate search in the Carolinas, don't hesitate to give me a call at 704 554-1100 or email me at bill@RLSTATE.com.