CONVERTING AN EXISTING CONDOMINIUM INTO A PLANNED COMMUNITY | Marshal Granor, Esq.


We’veallexperiencedit.FHAorFannie Maerefusestoapproveamortgageina condobecausetherearetoomanynon owneroccupiedhomes.Evenwhenan investororlendertriestoselltoan occupantowner,theloancanbedenied.


Howcanwegetnancingforourbuyers andhelpturnthesecommuniesaround?


Myanswerinatownhousecondominium wastoterminatethecondominiumand replaceitwithaPlannedCommunity(the PennsylvaniatermforaHomeowners Associaon).Howhardcoulditbeto followthestepbystepinstruconsinour statutes?Myclientbuiltatownhouse condominiumcommunityafewyearsago and,becauseoftherealestateeconomy doldrums,chose(or,perhaps,wasforced) toretainhalfoftheunitsasrentals.


Theowneroccupantstriedtorenance whenratesfelltohistoriclows,whichis whentheyencounteredthediscriminatory policymortgagelendershaveagainst condominiums.Admiedly,condosled thefallinrealestatevaluesinstateslike FloridaandArizona.Onereaconwasto limitthenumberofloansFHAwillinsure inanyonecondominiumcommunity.


Butthebigstoryinresidenal condominiumsalesandnanceconnues tobethelimitFNMAandFHAplaceonthe numberofinvestorownedunitsina condominiumcommunity.Whilethisis notanewphenomenon,builders(and


14 | 


lendersinpossession)werestuckwith inventory,andotherownerswereforced tobecomelandlordsbecausetheysimply couldnotsellatapricehighenoughto payotheirmortgage.Thus,some condominiumssawtheirinvestorrate exceedlenderlimits,makingtheir condominium"nonconforming."To obtainaloanonanonconformingcondo unitrequiresndingaporoliolender, andthesetypicallychargehigherfeesand interestratesthanforconformingloans.


Asofthiswring,FHA,FNMA,andFHLMC haveraisedtheirlimittemporarilyto50% investorunits.Ratherthanghttonda lenderwilling,forhigherreturnsandfees, toholdanoncompliantloanintheir porolio,myclientandtheresident ownershadabrilliant(?)idea.Let's terminateourcondominiumregimeand replaceitwithaplannedcommunity.Aer all,theseweretownhouseshapedcondo unitswhichshouldhavebeenina"PUD"1 plannedcommunityformatfromthe outset.


Nowhowhardcouldthatbe?


Beingunabletondacolleaguewhohad donethistypeofconversionbefore–aer all,whowantstobethersttoventure intothesedarkwoodsallalone–I inventedmyownprocedure.ButIdonot presentmyselfastheulmateauthority onthissubject.Iwouldbepleasedtohear fromotherswiththeirexperiencesand viewsonthesubject.


Tostart,weneedtocombinetherulesfor terminaonofacondominiumsetforthin theUCAwiththedirecon,ifany,inthe exisngdeclaraonofcondominium.


§3220. Terminaon of Condominium sets outtheprocess,whichIsummarizeas follows:


1.Obtainaterminaonagreement executedbyatleast80%ofallunitowners (oragreaternumber,ifrequiredbythe declaraon).


2.TheTerminaonAgreementmustbe recordedwithinoneyearofitsadopon orrstexecuonbyaunitowner.


3.Lendersmustbenoedofthe terminaon.


Theabove–obtainingthearmave approvalof90%ormoreoftheunit owners–maysounddaunngenough. Addtothattherightofsecuredlendersto approveorvetothisprocess.Thestatute permitsmortgageestohavecertainrights. FNMAandotheragencyrequirements haveinsistedlendershavetherightto approveanydissoluonofthecondo regime.Lookingtoourdeclaraon, "PermiedMortgagees"–thosewholea requestfornocaonswiththe associaon–mustarmavelyapprovea majoramendmenttothedocumentsbya 51%vote.Oneassumescomplete


annihilaonofthecondoregimewould (Connued on page 15)


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40