Refinancing Condo Proves Difficult Without Homeowners’ Association

Refinancing a condominium where there is no homeowners association may prove difficult unless the condo is treated as a townhouse.

Q: I currently own a cloud condo in San Diego, CA. It consists of four units, all of which are four stories, detached by about 3 inches, no common walls, no common roof, no common pipes, no common exterior space; in short, nothing is “common” and each owner carries his or her own insurance.

There isn’t an homeowners’ association (HOA) or a homeowners’ association fee, as there is nothing “common” for which such a fee would be necessary. There is however, CC&Rs, but the only method of enforcement is via court.

I purchased my home about two years ago and confirmed that my loan is owned by Fannie Mae. I am attempting to refinance through a nationally recognized lender and they’re telling me that a condo must have an HOA and an HOA board member must complete and sign the HOA certification documents. This is impossible since no HOA exists.

Do you know what guideline allows or does not allow for Fannie Mae approval of cloud condos? The lender claims they want to do the loan, but don’t know what to do. They actually asked that I research this, which seems a bit strange. I really want to take advantage of the lower rates as it will save me about $450 a month, but don’t know where to turn.

A: Your national lender is probably hung up on the terminology you used when you applied for your loan. In some parts of the country, what you own is simply a detached single family home.

However, it appears that “cloud condominiums” are simply small scale versions of single-family homes. The difference is that for one reason or another, the condominium designation might be required where you live to allow construction of your type of home.

Generally, if you have a subdivision or other arrangement of homes, you might not need any governing documents for those homes. The people that live there would simply have to abide by the local ordinances, zoning and building codes and other local laws.

When you create a new development, frequently developers create certain rules to govern the relationship between the many owners. In some cases, you can have a homeowners’ association (HOA) to set rules for its members and make decisions for all of the association members. Frequently when you have these associations, you may also have common amenities, common roads, common buildings, and other common issues that may require the association and a governing body.

One step past a homeowners’ association is a condominium association, where the condominium association owns the buildings and owners of condominium units own the interior space of units. In a condominium, you need the association to take care of building issues and other matters that affect all owners. One additional benefit to a condominium association is that it allows you to create an ownership interest in a type of real estate that is not historically common.

Historically, people purchased a plot of land and built a home on it. Now, with a condominium, you can own a piece of land 68 stories up in the air. Given this benefit, a cloud condo allows a developer to create spaces for the construction of homes that otherwise might not be able to be built on that land. What you describe as a cloud condo might not be permitted in other parts of the country, but it appears that they are permitted where you live.

Having said all that, if you told your lender that you live in a condominium, they probably don’t want to read the legal documents to see that the only issue created by the declaration is the parcels of land for each of the homes. The CC&Rs are “covenants, conditions and restrictions” that may regulate some of the activities of the homeowners but don’t create a homeowners’ association, give rise to assessments or create any lien rights by an associations against the homeowners.

Lending guidelines will require that the homeowners’ association answer questions relating to the development and disclose financial information about the association. As you don’t have an association and there are not financial issues to disclose, the lender should treat your home as a home in a townhome development. If you lender can’t get past the designation that you live in a “cloud condo,” you might want to find a local lender to refinance your loan – a lender with a better understanding of what you own.


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