Part I of a II part series on The Condo/Hotel financing challenge in Steamboat Springs Colorado:

Greetings Susana,

A quick question for you: One of the Homeowner’s Association board members for our Steamboat Springs Colorado condominium saw that our condos were listed as a Condo/Hotel, and we know that this makes it hard for someone to buy or sell a condominium in Steamboat Springs. Do you know what we can do to get that listing changed? Who do we have to contact or what?

Thanks. BG

Hi BG,

You had a quick question and I have a long answer… so bear with me.

First off, was there an actual place that the board member saw it “listed” as a hotel/condo? If there was, that would give me more information to go on.

There is no universal Condo/Hotel list

Otherwise, to my knowledge there is no actual Universal List that ALL lenders refer to. Individual lenders may have created their own lists.

Underwriters look at the HOA Query Letter

How the lenders arrive at that information is via the Homeowners Association Query Letter (it has some other technical name) that is sent out to the HOA manager to be filled out as part of the lender’s underwriting process. One of the questions is whether there is a front desk. Another is whether nightly rentals are allowed. Having a front desk may lead to the classification of Hotel/Condo by that lender. For other lenders, allowing nightly rentals in the complex may also lead to that classification. Some lenders have gone so far as to Google the complex’s name to see if they could book a nightly rental in the complex. If it comes up on Google as a nightly rental possibility they classify it as a Condo/Tel.

Selling condo mortgages on the secondary market is problematic

The problem with the condo/tels, as far as lenders are concerned is that the lenders (especially in the case of lenders via Mortgage Brokers) are unable to sell the mortgage on the secondary market. Fannie Mae is now the biggest buyer of mortgages on the secondary market and they believe (wrongly, we believe with regards to the ski resort market) that condo/tels are a greater risk.

Wells Fargo is Lending

Locally, Wells Fargo, for one, is lending on projects we normally would think of as condo/tels ( front desk, nightly rentals which are strongly marketed to Steamboat Springs’ visitors, shuttle service, etc.). They lent on a unit at The Lodge, a condominium complex across the street from the Gondola at the Mt. Werner ski area, for a client of mine recently and The Lodge is a full blown condo-tel. Wells Fargo actually has its own classification system, and set of requirements which I’ll get into in detail in Part II. My client had to put more money down than the conventional 20% – 30% I believe – and there were a few more requirements, but nothing major. And he still got a good rate.

The Google Factor

The lending market has been a constantly moving target since the start of the recession. A buyer now a days will have a harder time getting lending on just about any condo in town (mostly because most condo complexes in Steamboat have at least one unit that is available for nightly rental when Googled, and condos nationally still have the reputation of being located mostly in resort areas) versus a townhome. It is a sad fact, which the National Association of Realtors is currently fighting in Congress.

HOA dues delinquency rate means death to loans

The other thing that makes it difficult to get lending on a condo project is if there is greater than a 15% delinquency on HOA dues by the homeowners. Your condominium development, as far as I know, doesn’t have this problem. A few other condo projects, especially those with a lot of foreclosures and short sales, do have this problem. It’s another one of the questions that is asked in the HOA Query letter by the underwriters, and if the “Yes” box is checked, you can pretty much forget getting a loan on a condo in that complex.

Bottomline:

It is harder to get lending on condos in Steamboat than on townhomes or single family homes, period. But especially if there are any units being rented out on a nightly rental basis. It is harder still if you have an onsite front desk (which yours does not) and almost impossible if there is a greater than 15% delinquency in HOA dues (which I believe yours does not). A buyer may have to put more money down than the standard 20% , may have to meet a few other requirements, and may have to pay a slightly elevated interest rate on the mortgage to buy a condo in Steamboat, but that’s about it.

Sunray Meadows in Steamboat Springs changed their bylaws last year to prohibit nightly rentals, just to avoid this condo/tel lending problem. But it was later overturned by the Homeowners who were trying to sell their condos, with the argument that NOT being allowed to rent their condos on a nightly basis was discouraging buyers who wanted the nightly income! Go figure!

Continue on to Part II (on Susana Field’s SteamboatGal website): Wells Fargo Home Mortgage Plays White Knight in Steamboat Springs