I live in an active retirement community called Somers Village which is an ASSOCIATION. I applied for a reverse mortgage with Resolute Bank beginning in Jan 2018. working with a broker or agent. After 6-8 weeks of supplying all the required paper work, etc, ending with the my condo appraisal. When my agent went to Resolute to get the final approval, it was suddenly denied. Reason: The FDA does not approve of associations. Needless to say this was heartbreaking after all our work and time spent. I brought this up with our board of directors which did not want to hear about it. Our management company suggested getting a spot approval. I tried researching this and got nowhere trying to get an answer from FDA. My big beef is that of all the websites I visited about RM’s, there was never any mention about associations not being approved, other wise I would never have gone through the 6-8 weeks of a futile effort. Before going any further with this, is it possible to get a spot approval or am I wasting my time? I keep reading about all the ” changes” or “rules” that are supposed to be taking place and I have not given up on trying to get a reverse mortgage.

Hello Dante,

There are several things going on here that I really feel you should have been told.  Firstly, the loan is insured by a division of the US Department of Housing and Urban Development (HUD) known as the Federal Housing Administration or FHA.  People use the term FHA and HUD interchangeably when talking about FHA-insured loans because you get FHA mortgage insurance, but the rules for the program are put out by HUD.  If your home is a condominium and you wish to get a loan that is FHA-insured, it must be on HUD’s approved list to be eligible at this time.  HUD has a website you can go to (and your broker should have done this before you ever spent a dime on appraisal or any other costs) to see if your project is approved.

That website is available here.  If your home is not a condominium and is just in an association, there is no approval process required and the only issue that might come up is if your project has CC&R’s or Bylaws that violate HUD rules in some other regard.  I don’t believe that to be the case from what you are saying though because if that were the case, there is no approval process that would make the inadmissible conditions ok.

Your management company is living in the past – but there may be help coming.  HUD had a “spot approval” process whereby owners could get an FHA-insured loan provided the project met certain parameters and HUD did not have too great a concentration of insurance already in the project with just an acceptable HOA questionnaire but that process was halted by HUD in 2010.

Prior to the change in 2010, HUD would allow up to 10 loans to be insured in any one project on a “spot basis” without the entire project being approved on just an acceptable condo questionnaire from the HOA.  However, after the real estate crash, HUD began requiring all condo projects to be fully approved for any loan on which they issued insurance from the very first loan in 2010 and eliminated the spot process.

Since that time, we have had to have every condominium project on the HUD approved list or we could not do an FHA insured loan on the property (which included the HUD HECM reverse mortgage).  If the management company is telling you 8 years after the spot approval has been gone to get a spot approval, they are either way behind the curve or are banking on future changes (more about that in a minute).

There are companies that are not lenders and who specialize in getting projects approved through HUD.  It doesn’t take much on the part of the HOA or other unit owners, but they do need the project documentation and the HOA has to fill out the questionnaire.  Some boards and unit owners have this notion that if they get HUD approved, the values will be adversely affected because then buyers who can’t put down as much money will all of a sudden be buying all the units in the project with limited down payments and the project will fall into disrepair.

I think they are being short-sighted because seniors use the reverse mortgage program oft times to keep their properties maintained and people who need to sell their homes have access to more purchasers when FHA financing is available.  I know of and have seen cases where values increased because more purchasers had access to the project and with more available buyers, the competition drove prices up.

If you are really trying to get the loan done quickly, you may want to contact one of the companies that specializes in condo project approvals and see if they can help you.  Not that condo approval is a quick process, but they can usually let you know soon after receipt of your documents whether or not the project will be approved by HUD.  One such company with whom we have had good results is The FHA Condos Approval Company at http://fhacondosapproval.com.

As a bit of a disclaimer though, we are not affiliated with this company, I do not know their charges nor whether or not they are competitively priced so you may want to see if there are others as well.  I just know that they say they will get your project approved or you pay nothing so there is no cost to talk to them.

Finally, there may be good news for you and all condo owners on the horizon.  There has been a lot of talk at HUD about bringing the spot approval process or one similar to it back.  HUD actually had indicated they were going to bring back a similar program and hinted of big news to come last year, but then surprised everyone when they made huge cutbacks to the reverse mortgage program in September rather than easing condo restrictions.

Since then, there have been many discussions on how HUD has underserved this section of the market.  HUD finally admitted that this is the case and reverse mortgage lenders are grateful that when they make their announcements this September for changes to be implemented this year on October 1st of 2018, one of them will be a change to the condo requirements.  We don’t have anything as of this writing, but I would tell you to definitely keep your eyes and ears open because the rumblings indicate something may be in the works.

Also See: 

⚠ The Shocking Truth About Condominiums and Reverse Mortgages