Deciphering the VA Lender’s Handbook Chapter 16 Part 2
In the last article, we finished up by talking about the VA requirements for the title on properties that are in a common interest community such as a condominium or a planned unit development (PUD). We wrapped up the basic requirements for the title (sort of), but didn’t get started on the lien requirements. The VA’s title requirements can get complicated and difficult to understand, much the same way as the agreements and contracts that a common interest community may require. If you are both interested and courageous, you can check out VA regulations 38 CFR 36.4350, which has all the details of the title requirements that we talked about in the previous article. Alternatively, if you’re concerned about it, you can find an attorney that does free consultations, or just get started with a lender and have them explain it to you.
Lien requirements can also get complicated, but not usually as bad as the title requirements. Generally speaking, the VA requires that the VA loan be secured by the first lien on the property. We’ve talked about this in previous chapters, and even gone over the very few acceptable cases where the VA loan does not have to have the first lien on the property. If you want to learn what cases allow for a subordinate lien, you can look at VA regulations 38 CFR 36.4351 and 38 CFR 36.4351. Just throw those references into Google and the regulations from the VA should come right up. For the most part, though, all you need to know is that almost always the VA will require a first lien on the home, and that in a common interest community, any mandatory HOA lien or assessment is subordinate to the VA’s lien.
Appraising a property in a condo project is different from appraising a typical home. For you the process isn’t too much different, though you will receive a different appraisal report for your reference. If the property is a PUD, the appraiser will use Freddie Mac Form 70/Fannie Mae Form 1004, Uniform Residential Appraisal Report, just like for a standard home, but for a condo project, the appraiser must use Fannie Mae Form 1073, Individual Condominium Unit Appraisal Report. You should know that if there are any commercial or non-residential ownership interests in the condominium, the appraisal report will include that information and the interests’ impact on the value of the residential units. If you aren’t sure if the condo you’re interested in has a non-residential ownership interest, just call their office and ask.
As we mentioned in the , the burden of making sure that the common interest community’s title and lien agreements are acceptable to the VA falls on the lender’s shoulders. You should stay up-to-date as the lender makes sure that this is the case, because the Notice of Value that comes from the VA is conditioned upon the property’s title and lien agreements being acceptable to the VA. From the Handbook, “This property is located in a development with mandatory membership in a homeowners association. The lender is responsible for ensuring that title meets VA requirements for such property and that homeowner association assessments are subordinate to the VA-guaranteed mortgage.” This should all happen in the background, but a little extra vigilance on your part is never a bad thing.
The VA has essentially the same disclaimer on the Notice of Value for a condo project that has not yet been approved by the VA or which is in the process of making changes that will make it acceptable to the VA. They issue the Notice of Value and condition it upon the lender making sure that the property is acceptable to the VA’s requirements. Condos have a few more requirements that are regulatory in nature that we have not covered and are not going to bother covering, but they hit on things like a pre-sale requirement, warranty requirements, and the possibility for a required wood-destroying insect inspection. You can learn the details of these requirements for condos in 38 CFR 36.4360, or you can call us and ask!