Ever since this financial crisis has hit the financial institutions practices pendulum has swung completely the opposite direction, and perhaps rightfully so. While it was almost too simple to qualify for loans, pre crisis, with no income statements or tax returns needed, now it has become increasingly difficult to obtain mortgages on certain types of properties. Nowhere is this truer than in the second home or vacation property arena. The hardest hit products are fractional ownerships (simply no one is providing lending for this product type) and resort condos. The lenders theory is that should an owner come into financial difficulty they will quit paying on their secondary or vacation property prior to allowing their primary home to face possible foreclosure. Although the reasoning is sound it is not based in fact. This would be difficult enough but the lenders are now taking it to another level. Theorizing that these resort condos cannot be funded or refinanced and more will come under short sale or foreclosure status, the assumption is that entire projects will begin to fail as the Homeowners Dues will not be paid. To be fair to the lenders, Fannie Mae and Freddy Mac will not insure these loans.
We first noticed this disturbing trend with properties that provided amenities to guests such as shuttle service, swimming pools and on property check in desks. This has now spread to properties that have none of the above. The underwriters are getting on the internet and google the name of the project and if they find a certain percentage of short term rental units within that project they deny funding. I witnessed this first hand as a Quail Run unit that I had under contract was turned down for financing. Quail Run consists of approximately eighty two and three bedroom units. One common Hot Tub and playground, no shuttle, no on site check in but there happens to be seven units available for rent on a short term basis by Pioneer Ridge Management. Although the percentage is less than 10% the project was still denied for lending.
Due to this current practice Buyers either have to bring cash to the table or the Seller has to be willing to provide seller carried financing. Some projects are holding emergency HOA meetings to discuss the possibility of changing their regulations to not allow short term rentals thus allowing their units to be sold via financing. This will have an adverse effect on the owners who purchased the unit understanding the rules at the time of purchase to allow short term rentals.
