Ask Us: Modifying Condo Insurance Policy For Refinancing

Where readers ask and we (the community) try to answer:

Hi

I have been looking at your blog, quite a while, very useful. Thanks for all the work.

I have a question regarding refinancing, and hopefully you or your readers can help me.

I am refinancing with Wells Fargo with a locked 30 year fixed for a condo in SOMA. After all the word processing, Wells asked me for the HOA insurance contact, which I provided.

Now, my loan is on hold and cannot be approved because my HOA insurance was unwilling to add a mortgage clause by Wells. In general, the HOA insurance company only issued the certification for proof that the building is fully covered, no [declaration] page would be issued. (Which make sense to me, as HOA insurance policy covered the building, but not individual unit.) I understand, based on the information I found that some HOA will offer, but some don’t.

So now, here is my question, I have no control over the HOA insurance as an individual owner, I cannot make them issue the [declaration] page that Wells asks for, and Wells is unwilling to accept the certification, which worked in 2008 (my next door refinanced with Wells in 2008 with the certificaiton).

I am wondering whether this is a trick from Wells fargo to reject my loan application or if I should seek the property management/ HOA board to revise the HOA insurance policy? Or even if I should seek legal advice, because Wells is requiring some documentation way beyond my controls and making excuses.

Thanks

Darn fine question! From what I can understand there is a miscommunication regarding the insurance declaration page? If that is the case, I’d simply work on getting that filled out to the satisfaction of Wells Fargo. It shouldn’t be that big of a deal, and you might just be talking to the wrong people at your HOA. If that’s not the case, you’ll have to clarify a bit. Regardless, I do not think you’d have much luck advising the HOA to modify the entire insurance policy for the entire building, and I doubt Wells is playing some kind of trick, but I’ve been known to be wrong.

Maybe “the banker” or another qualified loan expert could shed some light in the comments below.

Thanks for reading and thanks for your email.

[Update: Answer from “the Banker” that works at one of the remaining large banks and is definitely “in the trenches”: “The HOA should not make the decision on adding a mortgagee clause, this should be the responsibility of the Insurance Agent who provides the coverage for the Condo. Part of your HOA fees are paying for the Insurance, so my advice would be to start there, call the insurance company yourself and have them add Wells Fargo as a Mortgagee, this has always been a lender requirement.

Now, perhaps the second part of your post. There have been some radical and rapid changes in regard to condo project guidelines, project requirements, and pricing add-ons. For the sake of simplicity, here are some of the key changes that have implemented, by most, if not all Lenders. One note, these new Rules and Requirements have been issued by Fannie Mae and Freddie Mac, so direct from the Government agencies.

-Only 10% ownership by one single entity
-No more than 20% commercial usage
-Up to 70% Presale Requirements, new construction
-Price add on’s for Loan to Values above 75%, usually .75 in price, not rate
-Delinquent HOA’s of more than 30 days cannot be greater than 15%
-Owner occupancy requirements, 51% and above

There are exceptions to the rules, but from what I have seen this year, they are few and far between.

I hope this helps and good luck.”]

8 thoughts on “Ask Us: Modifying Condo Insurance Policy For Refinancing”

  1. The HOA should not make the decision on adding a mortgagee clause, this should be the responsibility of the Insurance Agent who provides the coverage for the Condo. Part of your HOA fees are paying for the Insurance, so my advice would be to start there, call the insurance company yourself and have them add Wells Fargo as a Mortgagee, this has always been a lender requirement.

    Now, perhaps the second part of your post. There have been some radical and rapid changes in regard to condo project guidelines, project requirements, and pricing add-ons. For the sake of simplicity, here are some of the key changes that have implemented, by most, if not all Lenders. One note, these new Rules and Requirements have been issued by Fannie Mae and Freddie Mac, so direct from the Government agencies.

    -Only 10% ownership by one single entity
    -No more than 20% commercial usage
    -Up to 70% Presale Requirements, new construction
    -Price add on’s for Loan to Values above 75%, usually .75 in price, not rate
    -Delinquent HOA’s of more than 30 days cannot be greater than 15%
    -Owner occupancy requirements, 51% and above

    There are exceptions to the rules, but from what I have seen this year, they are few and far between.

    I hope this helps and good luck.

    Reply

  2. Thanks for answering my question.

    I did talk to HOA managment and the Insurance agent.

    This following is her response. And now who is right?

    Thanks

    I was unable to attach a mortgage clause to the HOA master policy, evidencing coverage for an individual unit owner. Unit is definded in the CCIRs as “the space bounded by and contained within the interior unfinished surfaces of the perimeter walls, floors, ceilings…..and door frames of each Unit”

    The actual structure excluding the above is owned by the Homeowners Association.

    XXX purchased a unit – not a part of the structure.

    I’ve processed 100s if not 1000s of evidences – a large percentage of those to Wells Fargo WITHOUT mortgage clauses with no problems.

    Reply

  4. I talked to the supervisor of the insurance agent today. She claimed that by law, they are not allowed to issue mortgage clause for individual condo owner, because there is NO contractual relationship among the individual owner and the lender. (which is a different case for a HOME, whose policy are directly connected the owner and the owner can authorize to add a mortgage clause to the lender).

    If Any HOA insurance issued those mortgage clause for individual, its liscense are subjected to be revoked by the Department of Insurance.

    Sometimes, I just don’t know who is telling the truth.

    I contacted department of Insurance in CA, Department of Corperation and Office of Controller Currency, no one were able to answer my question and accept my complain.

    I just felt so helpless, especially the rate jumped from Jan 09 to at least another .5% for now.

    Reply

  5. Aloha! I started the refinancing process of my condominium with Wells Fargo in the middle of March. All initial indications were that we would close in 30 days. I have excellent score of 799, no debt except $90K on existing mortgage with Countrywide. I don’t want any extra money…just lower payments and get a lower rate. Appraisal was 3x loan amount, and I have money with Wells Fargo invesments totallying $240K. Everything went smoothly until I get notified that my mortgage will not be approved because my owner occupancy rate is only 30% in my building. We are a small building of only 30 units, and though not all owners live there, they are all occupied, and we have an on site manager 24-7, who keeps things running smoothly, and makes sure people are taking pride in the property. If they dont’ they get fined, owner or renter. On top of that our HOA is fully funded for all future projects. After almost two months of “everything is going fine” from WF, to finally hear that I’m being denied because of this stupid rule has been devastating. I can’t help what is going on in the country. All I can do is take care of my own bills, and responsibilities. If this was a problem, why did that not be the first questions asked when I applied for the mortgage in the first place? Now, I’m out $600 plus on an appraisal that does me no good and I’m stuck with my high interest rate and the same high payment. When did this special “rule” come about, and can they really hang me up on this with everything else being so outstanding on my side. There is little or no risk in lending to me. Only because of this rule am I being denied. Where did it come from, and why would they not inform me of it early on before I go through the entire process and fork out all my money for the appraisal, and get continued promises by WF that all is running along as it should be until the bomb dropped on me. ‘ve been trying to find out more about this law/rule or whatever it is, and I can’t find out anything except that most lenders are now doing it. I’ve been here for 12 years and not going anywhere, yet I’m getting screwed for being a responsible person. HELP ME, PLEASE

    Reply

  6. When did these owner occupancy requirements for condominium refinances go into effect. I have been strung along by WF (please see my post) saying everything is going fine, only to hear just yesterday, that I am being denied because my owner occupancy percentage is just less than 30%. Our building is only 30 units. Though only 9 are owner occupied, they are all occupied, and the manager lives on property, and keeps a stern watch on owners and renters alike. I am a bank’s dream of awarding a refi to. I’ve never missed a mortgage payment in over 12 years, have no credit card debt, and a credit score of 799, and have $240K invested with WF investments. What gives? Can you please explain where this came from, when it came about, and why it was only brought up near the very end of the process instead of one of the first questions asked of me. I’m out a lot of money, and still stuck with a high interest rate, and payments. Help, Deb

    Reply

  7. Seems like Wells Fargo is the problem, but they say it’s out of their hands & puts the blame on Fannie Mae. I too had the same issue with refinacing a condo unit with Wells Fargo & had the loan with them for over 10 years. They had 45 days for all paperwork process; but waits 4 days before closing to tell me that the HOA insurance policy does not have enough coverage. Per my HOA association there was no probleming from buyers with a new loan. And yes, I’m out of $412! You would think they would tell you up front to check with HOA association to find out the amount of insurance coverage before ordering an appraisal. If anyone knows a resolution or a lender that has no problem with getting a conventional refinance loan; please let me know.

    Reply

  8. As an insurance CSR, he only reason I am not able to issue a certificate is because adding a loss payee & mortagagee on a master condo policy is promising the mortgagee that they will be reimbursed for any loss to the building a building that is also covering 130 other units, if there was a small fire in one of the units imagine the nightmare of having to issue a check to every mortgagee we would have to list…of money that they are not entitled to…why are they not satisfied with an HO6 as an individual owner that specific unit would be fully covered and that shouldn’t be a problem for Wells Fargo…

    Reply

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