If it looks like a duck and quacks like a duck, it’s most likely a duck. But in the case of real estate, a PUD (Planed Unit Development) often looks just like a condominium, yet it is something completely different. This might not seem like an important distinction, but after speaking with a townhouse PUD owner recently who was rejected for a conventional loan because the lender AND appraiser incorrectly labeled her property as a condo, this is definitely relevant.
Why can financing work for a PUD but not a condo? I asked Dave Heard, Branch Manager of Mason McDuffie Mortgage, for some insight on the situation above, and here is what he tracked down from one of his underwriters:
Underwriting guidelines and documentation requirements vary greatly depending upon whether the subject property is a condo or a PUD. It is important to confirm which type of property you are dealing with. Condos can require project approval and HOA insurance approval, which will require specific documentation which must be provided by the HOA. This documentation is analyzed for acceptability against investor guidelines. Many aspects of the project are reviewed and must meet specific criteria such as a certain number of units are expected to be occupied by owners, minimum square footage requirements, certain financial reserve requirements, whether the project has any commercial space just to name a few. The condo project review process can be lengthy and sometimes results in the project being rejected. A PUD on the other hand has far fewer eligibility and documentation requirements, and in some cases requires no review at all. If your PUD is a detached PUD, then these are normally just treated like a single family dwelling with no PUD project review required at all. If the PUD is an attached PUD, limited documentation may be required and the PUD project review process is much more limited with just a few project criteria checked. A conventional loan that can be approved for a PUD project may not be able to be approved for a Condo project because the underwriting guidelines do differ for condos and PUDs.
Labels Matter: In short, the PUD owner mentioned above was denied a loan with her first lender because both the lender and appraiser thought her property was a condo. Some of the “condo” information just didn’t jive well with the lender (there were far too many rentals), so the loan was rejected. BUT since this property wasn’t actually a condo (despite Tax Records saying it was), the owner was able to get a loan on her PUD property despite a high level of rentals in her subdivision.
Is it a condo or not? How to use a plat maps to know: If you want to be a real estate expert and provide accurate information to clients, it is crucial to be able to be able to tell the difference between a PUD and condominium. Let me use words, images and video to help illustrate how to do this. Remember, Tax Records can frequently label a PUD as a “condo”, which can be confusing.
It’s all about the lot: If you don’t have the CC&Rs or a legal description, it’s time to use the plat map in Realist. Does the plat map show specific lot dimensions for the subject property unit? If so, it’s most likely a PUD and not a condominium. Why? Because the owner of a condominium does NOT have ownership of the specific site on which the unit is built, so there is no reason to give specific dimensions on the plat map for the lot shape. If an individual parcel is identified with dimensions on the plat map for the individual lot, it’s not a condo. In contrast, since a PUD does own the lot, there should be dimensions for the individual lot. Click the thumbnails to view larger images.
Below is a quick video screencast so you can know how to use Realist Plat Maps in the Sacramento area to see if it’s a condo or not. Watch the video below (or here).
Any questions, stories or thoughts? What do you think of the lender and appraiser getting it wrong? Feel free to share your two cents.