By Rusty Bradshaw
Independent Newsmedia

A Sun City resident’s request to make a minor change to Recreation Centers of Sun City bylaws was called premature, but she is not giving up.

Susan Mesa made a request to change the bylaws slightly to allow Fair Housing Administration reverse mortgages on homes that had been foreclosed from previous owners. She made the request in a letter to the board, for which she received a response (“Opinions,” Sun City Independent, April 12, 2017), and at the April 10 member/director exchange meeting.



RCSC’s $3,500 preservation and improvement fee triggers FHA’s assumability clause, which requires the FHA be able to foreclose on the subject property without restrictions. Ms. Mesa quoted FHA regulations, “203.41.5.b – Policy of free assumability with no restrictions. A mortgage shall not be eligible for insurance if the mortgaged property is subject to legal restrictions on conveyance, except as permitted by this part,” and “203.41.5.c.2 – Exception for eligible government or nonprofit programs. Legal restrictions on conveyance are acceptable if: (c2) The restrictions will automatically terminate if title to the mortgaged property is transferred by foreclosure or deed-in-lieu of foreclosure, or if the mortgage is assigned to the Secretary.”

Because of the clause, some FHA loans are being denied, according to Vicki Frye of Rye Realty.

Chris Herring, RCSC assistant general manager, in his response to Ms. Mesa, said RCSC officials have been in contact with U.S. Housing and Urban Development officials in an attempt to get FHA rules changed to allow the loans and eliminate the need for changes to RCSC bylaws.

“Because we are actively engaged with HUD to address the issue we feel it is premature to make changes to the RCSC corporate documents to address a situation that is still fluid in nature and that we are optimistic will be resolved without making any changes,” Mr. Herring stated in his written response. “My hope is that you will understand that we are working with HUD to resolve the problem.”

However, the issue could end up in court, according to an attorney who attended the April 10 exchange meeting.
“This could become a fair housing issue because the FHA, a federal agency, is involved,” said German Salazar, AmeriFirst Financial vice president and general counsel, following the exchange meeting.

He tried to speak on the issue at the meeting but was cut short. RCSC board President Rich Hoffer explained the comment period during board and exchange meetings was for RCSC cardholders only.

RCSC officials are seeking further legal advice from their attorneys regarding the matter, according to Joelynn Higgins, RCSC communication and marketing coordinator.

Ms. Mesa believes changing the bylaws is not an insurmountable task, and only needs to be changed to apply to properties in foreclosure.

“We are just asking for fairness,” Ms. Mesa said. “Foreclosures would be the only (PIF fees) you would lose, and they would come back when the property goes back on the market.”

Sun City resident Greg Eisert believes the PIF bylaw should not be changed.

“How many people can only get FHA loans,” he said. “I would not recommend any changes that affect the PIF because that is 100 percent beneficial to all our residents.”

He added if the PIF did not exist, RCSC cardholders’ annual property assessments would be increased.
Changing FHA policies will take time, and that could damage the housing market in the meantime, according to Liz Recchia, West Maricopa Association of Realtors governmental affairs director.

“The free assumability clause is in the FHA underwriting guidelines,” she explained. “The FHA will need to address this issue not just for retirement and housing communities, but the free assumability clause affects other types of transactions, for instance leased rooftop solar.”

She stated any change in underwriting guidelines is subject to approval by the HUD secretary and will need to meet concerns of both Congress and the president, she added.

“Since FHA insures loans, the underwriting guidelines are designed to protect the taxpayer,” Ms. Recchia stated in an email. “Any significant change will come under scrutiny from multiple private and public entities.”

Changing preservation fee policies will also impact the RCSC budget. However, those impacts could be minimal based on rec centers officials’ information on foreclosures in their communities. RCSC officials stated foreclosures last year represented 0.16 percent of Sun City properties.

“Foreclosures have declined each year since 2012 and declined in 2016 by 80 percent from 2012 with 41 reported foreclosures,” Joelynn Higgins, RCSC communications and marketing coordinator, stated in an email.

She added the majority of feedback RCSC officials have received surrounds the impact on reverse mortgage financing.

FHA’s underwriting guidelines have been in place for a long time, according to Ms. Recchia. Historically, FHA purchase loans, refinances and reverse mortgages were not prevalent in retirement communities as most retirees and investors would pay cash, have significant down payments with conventional loans or use other conventional products, she explained.

“As the number of baby boomers retiring has increased, so has the number of FHA loans, refi’s and reverse mortgages,” she stated. “FHA programs can be less restrictive than conventional programs, particularly when it comes to credit scores and cash down payment requirements. Many baby boomers are burdened with debt and must use FHA programs to purchase.”

Ms. Recchia stated rec center officials can decide to amend the language to allow restrictions to automatically terminate upon foreclosure, deed-in-lieu-of-foreclosure or mortgage assignment to the HUD Secretary for FHA loan products. They need not include all FHA loan products in their exemption, they could select the products most important to the community, she added.

“In the end, communities and their residents have the ability to address this issue and solve it,” she added.