Deciphering the VA Lender’s Handbook Chapter 16 Part 3
If you’ve been following this series, you may remember a couple articles ago when I mentioned that purchasing a condo with a VA loan can be annoying. The next few articles are going to make it abundantly clear what can make the purchase process annoying when working with a condo. This article, and the next couple articles following it are going to detail the process of getting a yet-to-be approved condo project approved by the VA. There are a lot of steps to the process, but thankfully not many of them need to be done by you; most are done by the lender or the VA and you just have to wait patiently while they are done.
The first step that needs to be taken is for the lender to provide a couple of things to the local VA office of jurisdiction. They need to provide a written request for VA-approval, and a copy of the condominium’s organizational documents. Those organizational documents are very important to the process because the organizational documents contain most of the information that might be problematic to VA approval. The VA office will review the organizational documents and make sure that they comply with VA title, lien, and other regulatory requirements. After the VA finished reviewing the documents, they will notify the lender of their decision, and the lender will notify you. This must take place before any units or lots in the project will be eligible for the VA guaranty.
This approval process can be expedited if the project or community has already been approved by the Department of Housing and Urban Development (HUD) or, oddly, the United States Department of Agriculture (USDA). Generally speaking, if the project has already been approved by HUD or the USDA, the VA will not need to conduct further review. When the VA receives evidence of approval of the property by HUD or the USDA, the VA office will usually just add the project to the VA’s nationwide list of approved projects without issuing a formal VA approval letter. This is not always the case, however. There are some rare cases where HUD or the USDA will approve a house and the VA will discover that it does not fit their requirements. In this case, the VA notifies the lender as soon as they can that the VA will not guarantee loans for units in the project.
The VA advises lenders to utilize an attorney’s opinion when dealing with a project that has not been approved by HUD, the USDA, or the VA. The attorney can advise the lender on how to proceed based on the organizational documents. Aside from a project being approved by HUD or the USDA, there are a couple other ways to expedite the approval process. First, if the organizational documents for a condo project are virtually the same as a set that has already been approved for a different project, the lender should submit a certification from an attorney that states that they are virtually the same, specifically identifies the previous set, and describes any variations the set in question have from the previous set. Second, if a state agency has certified (or is willing to certify) that a condo project is in compliance with the laws of the state, then the lender can include that certification in the packet they send to the VA for approval.
After the VA finished reviewing all of the documentation that the Lender submitted, they will send written notice of their decision to the lender. The Handbook provides a table that shows the different possibilities of what the notice might say. It is shown below:
|When…||Then the notice will…|
|the project is approved||indicate any special conditions/requirements which much be met prior to VA guaranty of an individual loan in the project, such as
Note: There is no formal VA approval letter for projects accepted by VA based on their approval by HUD or USDA.
||explain what further documentation is needed.
Note: VA will then suspend processing pending receipt of the needed information or material.
|the project is unacceptable||state the reason.
Note: When there are objectionable provisions related to unreasonably retained controls or rights of the declarant/developer, and it is difficult to amend the documents, VA may consider a separate recorded agreement from the declarant/developer relinquishing the objectionable provisions.