Deciphering the VA Lender’s Handbook Chapter 16 Part 4
The first thing we’re going to do in this article is explain the term “declarant”. From the name, you can guess that it means one who declares something. In the context of common interest communities such as a condo project, the declarant is usually the developer of the community who decides what restrictions they are going to place on the properties in the development. These restrictions, and the entirety of the organizational documents of the community, constitute what is called a “Declaration”, meaning that the writers of the organizational documents of the community are the declarants. Understanding this term is important when you’re considering buying a condo or a home in a common interest community, and it will help you understand the topics addressed in this article.
A community’s declaration (or equivalent document) is amended from time to time. The VA recommends that the declaration contain amendment procedures that require any amendments to be approved by at least 67% of the unit owners. While that is just a recommendation, the VA also requires that the association request VA approval of any proposed amendments before they can be recorded. This obviously only applies to projects that have already been approved by the VA for the VA guaranty. The VA expects that any amendments to the declaration, bylaws, or other enabling documentation will be approved by the VA for as long as the declarant is in control of the association. This shouldn’t affect you as the borrower too much, except that you can rest easy knowing that the Board of Directors can’t arbitrarily amend the documents in a way that will adversely affect you. However, if you’re wondering why sometimes it seems that most condo projects aren’t approved by the VA, it might have something to do with all the extra hoops the directors have to jump when they want to make changes to their declaration.
The organizational documents of the association or condominium might specify certain rights for the holders of the first lien on the home (whoever owns your VA loan). Usually this will only happen if the lender makes a written request to the Association for this to occur. The rights your loan holder may request are:
- prior approval by first lienholders before the Association can
- abandon condominium status or partition or subdivide a unit or the common elements
- change the percentage interest of unit owners, or
- materially amend the legal documents
- timely written notice to first lienholders of
- any condemnation or eminent domain proceeding, and
- substantial damage or destruction to the common elements
- the right to
- examine the association books
- receive annual audited financial statements and record, and
- be given notice of association meetings and be entitled to a representative at such meetings.
Your right as the owner of the home will be clearly outlined in the organizational documents, and you have the assurance from the VA that those rights will not be affected in any way unless the VA approves the changes beforehand. Many common interest communities also require that a certain percentage of the homeowners agree to any changes (hence the term ‘homeowners association’). If you are worried about buying a home that is part of a homeowners’ association, you can look into the documents and history of the association, and even knock on some of the doors and ask your potential neighbors what their experience has been. In the end, you can always decide to purchase a home that is not part of a common interest community.
There are a lot of advantages to buying a home in a common interest community, particularly one that is focused on the things that are important to you. The VA does their best to protect veterans from the potentially ugly side of common interest communities, but penalties for breaking the rules of the community can be both strict and harsh. If you want to enjoy community amenities and extra services, a common interest community can be the right choice. If you want more control over your home and property, however, you may want to look at other options. It all depends on your preference, and what’s available in your area.