Receiving a Lender Project Questionnaire
There is nothing quite as daunting for a community association board member or manager as a Lender Project Questionnaire, sometimes also referred to as a condo questionnaire or a PUD questionnaire, finding its way to your desk. As your trusted association attorneys, we want you to understand your rights in regards to filling out these lengthy, and often confusing forms.
A Lender Project Questionnaire is used by lenders to evaluate approval of a buyer’s loan. While these forms may seem harmless in theory, in practice they are full of pitfalls that have landed some board members in hot water. The danger is assuming you have to answer every question presented and then answering one unwisely.
You likely received this form from an outside lender because a buyer is seeking to acquire a loan and purchase property in your community. Most loans are approved and insured by Fannie Mae, or the Federal Housing Association. Before issuing a loan, the lender needs to know that the community meets FNMA and FHA standards, such as the governing documents containing provisions addressing increases in assessments above a certain level without a membership vote, amendment approval thresholds, ratio of homes or units sold to primary owners versus investors, delinquency rates, etc.
The problem is that these forms can be different from lender to lender, and are legal documents that if answered incorrectly can lead to liability. Some lender questionnaires overreach asking questions the community should not answer. Just because a question is asked does not mean it must be answered. Making matters worse, some lenders have the gall to demand the answers be given under oath, which you are in no way required to do. Sometimes you may simply not know the answer and it’s best to require the lender to perform their own due diligence. Lenders want the business from the sale, and if compelled the often will do their own homework.
That said, associations who flat out refuse to answer questionnaires may prevent the buyer from securing a loan, leading to a collapse of the sale and potential devaluation of the property. Since lender questionnaires are legal documents and false answers can lead to liability what is an association or manager to do?
Many questions are best responded to by legal counsel or other experts. If a question regarding insurance coverage is asked, it’s best to refer that to the association’s agent for response. Some questions should simply be answered as unknown. For example, the ratio of primary homeowners to investors, or the number of FHA Loans in the project is something the association is unlikely to know. Similarly, unless your association has the right to approve leases and prospective tenants, there is no way to accurately identify the ratio of rented homes. Associations should only answer the questions they know and refer all others to their attorney or other expert.
Finally, to make things a bit easier for board members and association managers, a major bank that specializes in HOAs, condos, and community associations created a service called CondoCerts. It essentially houses all the governing documents and most of the data that lenders request in their questionnaires. It’s available online 24/7 and is approved by FNMA and all other major lenders. There is a fee for processing this questionnaire request, which would be paid by the lender. The combination of conferring with you community experts and utilizing services such as CondoCerts should allow you to confidently answer these Lender Project Questionnaires while still minimizing the risks to your community.