The Truth About Lender Questionnaires
Updated: Oct 12, 2021
For years the mortgage industry has been demanding that their form be completed “OR THE LOAN WON’T BE APPROVED!!!”
Be careful when answering those lender-specific questionnaires lenders send over when they're evaluating whether to approve a potential buyer's loan. Be especially cautious when using pre-printed, pre-filled, or mapped lender forms offered by a document re-seller. It is impossible to automatically answer the hundreds of unique questions with accurate information. After attending law seminars and having discussions with management company owners and attorneys from coast to coast, here are some compelling points for NOT completing bank or lender-specific forms.
1) Lender Questionnaires are written in favor of the lender. They are strategically designed to shift the liability to the association or person completing the form.
2) There is no legal obligation to complete them. There has been no known evidence of any statute/code/law in any state that requires any party to complete a “lender questionnaire” / “HOA Certificate” / “Condo Certificate” etc. Beyond this, all attorneys that we consulted had no knowledge of any legal obligation.
3) Lender Questionnaires are for the purchaser, who is NOT a member of the association and to which the association or its management company has NO obligation. Providing privileged association information to the lender or buyer could be a violation (reference sections 4 & 8).
4) Lender Questionnaires are potential violations of legal obligation to HOA (fiduciary), as well as a contractual obligation to the HOA, and finally confidentiality.
5) Many questions are impossible to answer such as the number of homes: rentals / 2nd home/owner-occupied/investor owner. Additionally, one question asks about “… foreclosure or deed-in-lieu…” and requires a “yes” or “no” answer. It is impossible because they are different and each may require a different answer. Finally, are reserves adequately funded…describe adequate (opinions). These are only a few of the many examples that were pointed out by the attorneys with whom we spoke.
6) There is no way to automate answering these questions for multiple (5,000) forms. The wording of these questions can easily be misread or misunderstood. If you don't believe me take a 4 to 6-page questionnaire to your favorite attorney and ask them for their opinion.
7) Consider that “standard” (Fannie Mae) forms may require 50 hours for an attorney to complete due to the research required. i.e.: “is the property subject to future phasing or annexation?”.
8) Approval should be made by BOD, Attorney & Seller prior to providing each form to the buyer or lender.
9) Insurance opinions and coverage questions should always be answered by the insurance company (managers are NOT licensed to discuss or determine insurance coverage).
10) Special assessments “contemplated” is a future guess 11) How does “first right of refusal” materially affect lenders? – this is a legal opinion.
12) Zoning (legal opinion).
13) Many of the questions can be answered by the documents required in Resale Disclosure Packages (See your state laws). This is one reason several states require sellers to provide Disclosure Packages to the buyer. Once received, the buyer can give the information and governing documents to their lender. The loan officer will have all of the information about the association available to them.
14) FHA Loan % - Associations and Management companies have no reason or responsibility to track/record this information. This is NOT something that should be answered by them.
You may still be wondering “what’s the big deal?” Or you are thinking I don’t want to hear the complaints from lenders. Think about another event similar to the 2008 “bubble burst.” Where will the lenders look to defend their credit decision? There are many management companies that are NOT filling out bank-specific forms and the loans are still being approved.
Much of the information for this article was gathered through confidential discussions with attorneys, however, here are a few public sources.
How to Answer Lender Affidavits and Questionnaires: http://bit.ly/howtoanswer_lq
Lender Affidavit Letter : http://bit.ly/lender_letter
HOA Boards: Beware Lenders' Questionnaires https://www.hoaleader.com/public/819print.cfm
Think Hard Before Answering Lenders’ Questions: http://bit.ly/B4answeringLQ *5 FAQ from California :http://bit.ly/CA_FAQ_LQ
About the author,
J Bradd Greene is the CEO of GetDocsNow. He can be reached at Bgreene@getdocsnow.com for any questions.