Lender's Questionnaire - Purpose
The lender will not tell you this, but there are two purposes behind the lender's questionnaire. The first is to obtain information about the association and loan applicant in order to assist the lender in making a loan underwriting decision. The other purpose is to transfer risk to the person signing the lender questionnaire as well as the association. Should the borrower fail a make any future payments on the loan, the lender will examine the lender's questionnaire in order to determine if any of the information was incorrect so they can claim a material misrepresentation was made or possibly fraud. This gives them the ability to file a lawsuit against the individual signing the questionnaire and/or the association to cover them for any losses the lender may suffer including the cost of repurchasing the loan if it had been sold to an investor.
It is for this reason that it is critically important for the person signing the lender's questionnaire to exercise great care and to be accurate.
Most lenders ask between 30 and 50 questions that must be answered in writing within ten days. Following is a sample list of questions to which we must often respond when someone is refinancing their unit or selling it:
- Are there any recorded deed restrictions, and if so, what are they?
- Can buyers of units acquire more than one unit using a single deed?
- Is the association involved in any litigation or pre-litigation? If so, explain.
- Has anyone threatened litigation against the association in the last 6 months? If so, explain.
- Is any part of the association located within a flood zone? If so, does the association have flood insurance with 100% replacement cost coverage?
- Is the association approved by the Federal Housing Authority?
- Is the association approved by the Veterans Administration?
- Are the association's reserves at least 70% funded? If not, has the association adopted a formal funding plan to reach 70%.
- Is the association required to perform elevated structure inspections and have the inspections been made or scheduled?
- Is your association managed by a professional HOA manager with at least 10 years of HOA management experience?
- Is the management company a member of any professional organizations such as Community Associations Institute (CAl) or California Association of Community Managers (CACM)?
- Does the management company have in-house legal counsel or a law firm on retainer?
- Does the management company have an insurance administrator who can answer technical questions and provide advice?
- Do any building code violations exist?
- How many units are more than 30 days delinquent?
- When was the last time a licensed engineer or architect inspected the property and did they report any hazardous conditions?
- Are at least 10% of the monthly assessments allocated to reserves? If not explain?
- Has the association adopted a current fiscal year budget? If not, why? Provide the most current budget and the minutes showing its adoption.
- Do any habitability issues exist within the association?
- Does the condominium allow for live/work arrangements?
- Is the condominium project FHA approved?
- Does the condominium project meet Freddie Mac requirements?
- Does the condominium project meet Fannie Mae requirements?
- Are any of the units designated as affordable housing and if so, how many?
- Does the association's reserve account have sufficient funds to fund all insurance deductibles?
- Are any of the unit owners in bankruptcy? If so, is it a Chapter 7 or 13? Provide details.
- Is the project a conversion? If so, was it a full gut conversion where the roof and all mechanicals were replaced?
- Is the project subject to zoning restrictions that would prohibit the project from being rebuilt to the current density?
- Is a lender liable for delinquent assessments if they foreclose on a unit? If so, for how many months?
- Is a lender liable for delinquent assessments if they receive title to a unit by means of a deed in lieu of foreclosure? If so, for how many months?
- Are the condominium units owned in fee simple?
- What percentage of the budget is allocated to reserves? If it is less than 10%, explain why.
- When was the last full reserve study completed?
- Are any of the board members aware of any deficiencies related to the safely, soundness, structural integrity, or habitability of the project's buildings including any of the individual units?
- Do any building code or zoning violations exist?
- Are any special assessments anticipated to be approved in the next 12 months? If so, how much per unit and for what purposes?
Most importantly, in order to avoid fraud or even a fraud claim a completed lender's questionnaire must be sent only to the lender or the lender's escrow company, and never to the loan applicant or seller.
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