Fidelity Bond requirements

Hello,

I am a potential buyer who is in escrow and the lender is asking that the HOA required to have Fidelity Bond coverage. To make things worse, my wife and I (buyers) and the seller agree to pay for the 1st year's premiums which is about $668 however the HOA president and the board still refused to get the Fidelity Bond coverage. Since we are getting a loan which is Fannie Mae and/or Freddie Mac guaranteed and this coverage is part of their requirements. This HOA is a self managed HOA so there is no management company involved. The seller is trying to arrange the meeting with all of the howeoners to get a vote on this. Since other homeowners will not be able to sell their place unless it's a cash sale or hard money loan and in today's economy this is very unlikely. This HOA is being very unreasonable especially it won't cost him anything for the first year.

Please let me know what actions we can take againsts HOA. Its seems they are not looking out for the best interest of their homeowners and therfore not performing due diligence.

Thank you very much for your input.

Chris hit it on the head, education seems to be the key component here. I am not very knowledgable about the situation so my first response as an HOA president would be no, why do we need that. Educating people on why it is needed and what it can and will do for the association is really your only recourse here.

Thank you guys for your input. Much appreciated! The current owner (seller) is trying to organize the emergency HOA meeting where he would ask all of the homeowners for thier opinion and vote on this. The hard part for me to comprehend is since we agree to pay for it why HOA just go with it, it does not cost them anything and then they can revaluate the sitation next year to see if they find value in it.

What if the homeowners vote for this coverage can the HOA still refuse do get it? Can then they be liable for not performing due diligence?

Thank you.

Your ability to take any action is very limited since you are not an owner and not a member. The seller might be able to do things, but you might be running out of time.

Are you getting an FHA loan? Is the association FHA approved? There are many associations that purposely don't want to get FHA certification because they don't want people paying only 3% down payment moving in. I am not saying it's a right move, but it's a reality.

The required HOA information was provided by our lender since the HOA submitted the financial and other information to escrow and a copy to our along with the current insurance policy. In the perfect world the coverage preferably need to remain in place. Our lender provided the Fannie Mae guidelines that contain the requirement. This is the only thing preventing us from closing, we are so so close and to loose this place over this would be devastating for us.

Thank you for you input guys!

Roman, it's a bummer to be this close and have to walk away. THe good news is that there is another better deal is just around the corner. But you can also try to talk to few other lenders and maybe one can get your loan done without a Bond.

Roman, you may want to ask around. We just had two units sell in our building with conventional loans and we don't have this bond in place. A friend just bought a condo also where this wasn't a requirement.

Since the housing crisis, many new rules were put into place that has the lender looking at the financial stability of an Association (because they don't want a financially unstable HOA to call for a special assessment or massive increase in fees which might cause the borrower to default or miss payments on the mortgage).

The same housing crisis caused the guidelines for FHA certification of Condominiums to be tightened. Having an FHA certification means that the development meets the new rules (plus other criteria).

Fannie Mae and Freddie Mac used all of those rules and developed new criteria for loans as well. As you know, Mortgage loans are sold many times before they are paid off. Fannie Mae and Freddy Mac are the main purchasers of home loans. Therefore, many lenders require the same rules as Freddie and Fannie so the loan can be more easily sold.

Here are some links you may find interesting:

Freddie Mac Condo requirements

10 Questions You Must Ask Before Purchasing A Condominium Unit

Hope this helps,

Tim

Roman, my building is in Valley Village but it's a 20 units building so it may make the difference. The building my friend bought at is in Tarzana and it's a 100+ units building, so I would guess the requirement would be the same as yours. Maybe she got lucky and it didn't get noticed.