Some time back I wrote a blog post that I titled “hoisted by our own petard” in which I discussed how a decision on real estate developments in Michigan that was made some years back has come back to haunt the state. Michigan made it easier on developers by allowing a development classification that is called a site condo development. The site condo development approval process was very much faster, too; which allows developers to get a quicker return on their land and infrastructure investments. All good stuff for the developers, or so they thought.
But, it turns out, there are some downsides too that were not considered at the time (hmmm, unintended consequences of the actions of lawmakers, who would have ever thought). Since site condos are considered to be a special type of condo development they are subject to the rules that govern condo complexes, especially by lenders. Lenders look at things like the percentage of the complex that is complete and the percentage of the complex that are rentals or the percentage of the complex that already have loans guaranteed by FHA. Based upon those percentages, which they also equate to risk factors, they may or may not lend on a property in one of those developments. Most of these rules were not a problem until the economy tanked and many site condo developers went belly up with largely unfinished projects. Now buyers and sellers in those site condo developments are having trouble. I received the message below in response to that original post and thought that it warranted an additional post.
We put a cash offer on a site condo "lot" or unit as it is legally described as, in S.E. Michigan ... and we were denied a CONVENTIONAL building loan with 25% down!!!!!! We pre-qualified for the loan and everything. We have credit scores in the 800's and stable jobs, etc. National banks don't understand "site condos" and wouldn't make an exception to their rule of building a single family residence on a condo unit. We appealed and then were told that the by-laws state that the HOA could put a lien on our house if we defaulted on the HOA annual dues. The dues are $800. The bank thought that was too high of a risk and denied our loan. All over $800/year!!!!!!!!!! I'm so mad. This is killing Michigan!
There are all sorts of unusual or stupid things happening in real estate all over, but Michigan would likely be in the running for a prize on America’s Dumbest Real Estate Market Scenarios, if that were a reality TV show, We are one only a few states to have adopted the site condo development class and most out of state banks (which is most banks) don’t understand it or how to deal with it. So they just deny people loans, so that they don’t have to work to understand the market here. This would be akin to a bank denying money for borrowers in Louisiana because they don’t understand the concept of organizing local governmental bodies into Parishes instead of Counties, so it must be a higher risk. Some idiot somewhere could conclude that Parishes have something to do with the church and decide not to loan to religious groups. Sound crazy? No, it’s just ignorance and that’s what’s really impacting our Michigan site condo market – ignorance on the part of out of state lenders.
But, it turns out, there are some downsides too that were not considered at the time (hmmm, unintended consequences of the actions of lawmakers, who would have ever thought). Since site condos are considered to be a special type of condo development they are subject to the rules that govern condo complexes, especially by lenders. Lenders look at things like the percentage of the complex that is complete and the percentage of the complex that are rentals or the percentage of the complex that already have loans guaranteed by FHA. Based upon those percentages, which they also equate to risk factors, they may or may not lend on a property in one of those developments. Most of these rules were not a problem until the economy tanked and many site condo developers went belly up with largely unfinished projects. Now buyers and sellers in those site condo developments are having trouble. I received the message below in response to that original post and thought that it warranted an additional post.
We put a cash offer on a site condo "lot" or unit as it is legally described as, in S.E. Michigan ... and we were denied a CONVENTIONAL building loan with 25% down!!!!!! We pre-qualified for the loan and everything. We have credit scores in the 800's and stable jobs, etc. National banks don't understand "site condos" and wouldn't make an exception to their rule of building a single family residence on a condo unit. We appealed and then were told that the by-laws state that the HOA could put a lien on our house if we defaulted on the HOA annual dues. The dues are $800. The bank thought that was too high of a risk and denied our loan. All over $800/year!!!!!!!!!! I'm so mad. This is killing Michigan!
There are all sorts of unusual or stupid things happening in real estate all over, but Michigan would likely be in the running for a prize on America’s Dumbest Real Estate Market Scenarios, if that were a reality TV show, We are one only a few states to have adopted the site condo development class and most out of state banks (which is most banks) don’t understand it or how to deal with it. So they just deny people loans, so that they don’t have to work to understand the market here. This would be akin to a bank denying money for borrowers in Louisiana because they don’t understand the concept of organizing local governmental bodies into Parishes instead of Counties, so it must be a higher risk. Some idiot somewhere could conclude that Parishes have something to do with the church and decide not to loan to religious groups. Sound crazy? No, it’s just ignorance and that’s what’s really impacting our Michigan site condo market – ignorance on the part of out of state lenders.
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