I had lunch with a friend in the mortgage business recently and he told me about a difficult real estate loan he was doing for a client in San Francisco.
His client was purchasing a brand new condo and the real estate developer had a very common deed restriction regarding first right of refusal if the unit were to be sold within the first year. Basically this protects the developer’s interests and really does not harm the seller or lender. It states that if someone wants to sell their unit within the first year, for whatever price they choose, the developer has the right to purchase it before anyone else. This prevents a condo owner from dumping a unit on the market really cheap and devaluing the entire development. It protects the developer and other owners.
Such a deed restriction would not have raised a single eye brow with any lender a couple years ago, but this is a different environment. This deed restriction caused all kinds of delays with the lender. The mortgage broker had to negotiate back and forth and the deal finally closed, but this hurdle came up unexpectedly and late in the process.
The moral of the story here is that if you are buying a brand new home in a development, ask the real estate developer if he has such deed restrictions and if so, your mortgage broker needs to address this early on with whomever might be funding the loan.
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