This is Southern California. Our family owns a condo and is under contract with a buyer. We are doing a 1031 exchange for another property, which we are currently in escrow on. The couple buying our condo says they have had four lenders tell them that they need the HOA’s insurance deductible to be lower. The current deductible is $25,000, and they say it needs to be $17,500 or less. We spoke to the HOA, and they said they’d discuss our concerns, but no changes are happening. Our agent has worked with their agent trying to negotiate with the lenders, offering to carry more insurance as the condo unit owners, but this still does not meet the lenders’ standards.
My first question is whether this is a legitimate concern. The buyer’s agent has made several mistakes in this process, and we are doubtful about her competence. Is there something we might be missing, or could the buyer just want out of the deal? Has anyone else experienced this? What solutions are available? Other units have sold in our complex recently, so our agent is calling those agents for feedback. The buyer has not released the loan contingency. Thanks in advance.
This is a common issue in California. As a loan officer licensed in California, I find that about one in every three deals runs into some kind of insurance-related issue. Usually, it’s fire insurance, but the water deductible being too high is also common.
No, but the lender may be willing to allow the buyer’s individual policy to cover the shortfall in the master policy. This varies from lender to lender, though, so it’s not a guaranteed option.
It depends on the type of deductible they are referring to. There’s no catch-all answer since it depends on the insurance type and lender discretion. I’ve seen cases where my current company allows HO3 coverage instead of HO6 or allows the individual policy to cover the master policy shortfall. Each loan is unique, so it’s hard to give a blanket solution.
So if the OP got told no by four lenders, the best case is if they were all large, similar lenders. They should try to find someone smaller and more flexible. If that doesn’t work, they may be out of luck?
Condo underwriter here. This issue is prevalent across the US. Is it a per unit deductible? No deductible can exceed 5% on a master property policy, but per unit deductibles have workarounds.
Have any condos in the complex sold recently that were financed, not cash? If so, ask your agent to reach out to those agents for the name of the lender that was able to do the loan.
Yes, this situation is real. I recently dealt with a condo complex that was Fannie Mae approved until August of this year due to a $25k deductible. They managed to get an endorsement to reduce the deductible and regain Fannie Mae approval.