This was originally posted by Mike Kennedy - 9/15/2007 in Appraiser's Forum
This is Freddie's definition: (Following at the bottom of this posting, see the HUD definition from 4150.2)
FREDDIE 2003 PUD - GUIDELINES
PUD Requirements:
•Please submit all PUDs through proper channels to obtain PUD approval.
•All projects must meet FHLMC requirements as follows:
-
The individual unit owners own a parcel of land improved with a dwelling. This ownership is not in common with other unit owners.
-
The development is administered by a homeowners association that owns and is obligated to maintain property and improvements within the development (for example, greenbelts, recreation facilities and parking areas) for the common use and benefit of the unit owners.
The unit owners have an automatic, nonseverable interest in the homeowners association and pay mandatory assessments.
Freddie Mac Underwriting Guidelines 12 July 24, 2003
__________________________________________________ __________________________________________________ _______________
PUD Requirements (continued):
•Insurance requirements:
-
If the individual units are covered by insurance purchased by their respective owners, the PUD homeowners’ association must maintain “all risk” coverage for common areas and property for 100% of their insurable value and providing for loss or damage settlement on a replacement cost basis. The association must also obtain any additional coverage commonly required by private mortgage investors for developments similar in construction, location and use, including the following where applicable and available:
Agreed amount
Demolition cost
Increased cost of construction
Boiler and machinery
-
The PUD homeowners’ association must maintain coverage on common areas and property for 100% of their insurable value. Deductibles may not exceed the lower of $5,000 or 1% of the applicable amount of coverage.
Funds for such deductibles must be included in the association’s reserves and must be so designated.
Liability Insurance:
- The PUD owners’ association must carry comprehensive general liability insurance covering all common areas, common elements, commercial spaces and public ways in the PUD project.
If not already included in the terms of the coverage, there must be a “severability of interest” endorsement precluding the insurer’s denial of a unit owner’s claim because of negligent acts by the association or other unit owners.
The association must carry any additional coverage commonly required by private mortgage investors for developments similar in construction, location and use, including the following where applicable and available:
Comprehensive automobile liability
Bailee’s liability
Elevator collision liability
Garage keeper’s liability
Host liquor liability
Worker’s compensation and employer’s liability
Contractual liability
The insurer’s limit of liability per occurrence for personal injury, bodily injury or property damage under the terms of the above coverage’s must be at least $1Million
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http://rds.yahoo.com/_ylt=A0geu9R0v8...Guidelines.pdf
PAGE 11.
** Poster Recommendation: compare subject's HOA structure, Individual Property Owners' ownership of both the HOA and common area lot ownership, etc. with the ABOVE requirements for PUD underwriting to determine IF the subject's "HOA" MEETS Freddies Criteria for a PUD.
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Per Cont. Ed Class we took Oct 18, 2005 at the NMU Genoa Woods Center (see booklet “Professional’s Guide to the Uniform Residential Appraisal Report” Student Handbook. Written by Richard Heyn. And class by Richard Borges II. See below excerpt I took from that book:
“This section of URAR to be completed only if subject uit is in a PUD. There are four key elements in FNMA’s definition of a PUD:
1. Common Property
2. Automatic, nonseverable membership in a homeowner’s assoc.
3. Not a condo development
A PUD may look like a traditional sub development, although it will often have a private road and perhaps some other “Common” elements. Residents of detached single family dwellings enjoy fee-simple ownership of their individual sites, but the road and any other “common” elements are controlled by the property owners association, at least after a certain time. A PUD developer will generally record deed restrictions or bldg covenants to which purchasers must agree as part of the initial sales agreement. The developer will generally be responsible for enforcement of restrictions and covenants until a certain percentage of sites (often 50%) are sold. After that, the homeowner’s assoc. becomes the enforcing authority and controls the common elements.
4150.2
9 PLANNED UNIT DEVELOPMENTS AND CONDOMINIUMS
9-0 PLANNED UNIT DEVELOPMENT (PUD)
A PUD is defined as a mixed-use residential development of
single-family dwellings in conjunction with rental, condominium,
cooperative or town house properties. A residential development
should be processed as a PUD if it has these minimum
characteristics:
o a homeowner association that holds either title in fee or a
lease of prescribed length on the common area
o mandatory membership of all unit owners (or units) in the
association
o the right of all unit owners to participate by vote in the
operation of the association
o lien supported assessment of the members to meet the
association's budgeted operating costs (special assessments
may be handled differently)
To be eligible for insurance endorsement, PUDs must be approved
by HUD. The lender is responsible for obtaining a case number
from HUD to ensure that the PUD is already approved. The
appraiser should note whether there is a case number.
A. APPROACH TO VALUE
The approach to value for a PUD is the same as the approach
to value for other types of developments (see Chapter 4 of
this Handbook). Frequently, however, no valid comparisons
are available that estimate market value. In these
instances, appraisers should use the replacement cost
estimate in valuation. Estimate the replacement cost of
improvements, miscellaneous allowable costs and marketing
expenses the same as any Section 203(b) case. If properties
in similar developments in the area have been sold, then
direct comparisons are possible and the Comparative Approach
would be valid and should be used.
B. ESTIMATE OF MARKET PRICE
Estimating the market price of an equivalent site requires
consideration of these factors not usually encountered in
ordinary appraisals:
o Consider the size of individual sites when approaching
the use of common areas and recreational facilities.
o If there are similar developments in the neighborhood,
consider a comparison of common areas, including
recreational amenities.
o If there are no similar developments, place more
emphasis on the cost to produce a similar site with
similar facilities and benefits.
o Distribute the pro rata supportable cost to maintain
the common improvements, facilities and land owned by
the homeowner's association to each site in the
development (subdivision) and add it to the estimated
value.
9-1
4150.2
o To reflect additional amenities to the common areas,
include an estimate on the Marshall and Swift Form
1007. On line 32, cross out "landscaping cost" and
enter additional amenities".
o Consider maintenance charges regarding cluster
arrangements. For example, note whether the advantages
of cluster arrangements are negated by high maintenance
charges.
o Before performing the assignment, check with the lender
to ascertain that the project is on an approved list
maintained by the Home Ownership Center (HOC). Check
the URAR item indicating that the property is within a
PUD project.
9-1 CONDOMINIUMS
A condominium is a form of fee ownership or long-term leasehold
of separate units or portions of multiunit buildings that
provides for formal filing and recording of a divided interest in
real property. In contrast to a PUD, a joint share in ownership
of the common area is part of the mortgaged property, and
therefore, constitutes a measure of the security backing the
mortgage loan. FHA's interest is therefore more immediate and
direct with respect to the common areas of condominiums than
those of PUDS.
Before performing the assignment, the appraiser must check with
the lender to ascertain that the project is on an approved list
maintained by the HOC or by a DE underwriter who has performed a
spot condominium approval. The appraiser must check the URAR
item indicating that the property is within a condominium
project, and therefore, eligible for FHA endorsement.
A. DEFINITIONS
Mortgage: a lien covering a fee interest or eligible
leasehold interest in a one-family unit in a project,
together with an undivided interest in the common areas and
facilities serving the project.
Family Unit: a one-family unit including the undivided
interest in the common areas and facilities and such
restricted common areas and facilities as may be designated.
Common Areas and Facilities: areas that are for the use and
enjoyment of the owners of family units located in the
project, including the land, roof, main walls, elevators,
staircases, lobbies, halls, parking spaces and community and
commercial facilities.
Restricted or Limited Common Areas and Facilities: areas and
facilities restricted for use by a particular family unit or
number of family units.
Project: a structure or structures containing four or more
units.
Conversion: the creation of the condominium as of the date
when all of the documents necessary to create a condominium
regime have been recorded under state and/or local law.
9-2
4150.2, CHG-1
Bona fide Tenants' Organization: an association formed
by the tenants to promote their interest in a
particular project whose membership is open to each
tenant and whose requirements apply equally to each
tenant.
Condominium Fee (Assessment): the apportionment of
common expenses that are to be charged to a unit owner
in a manner to be determined in the declaration or by-
laws. The charge may include costs for utilities on
individual units and on common use buildings, security
requirements, salaries for employees of the association
and repairs to common facilities.
(9-1)
B. APPROACH TO VALUE
The approach to value for a single unit in a
condominium project is similar to that for other home
mortgage programs. As in other home mortgage
appraisals, value indications from the Sales Comparison
and Income Capitalization Approaches are developed and
considered (see Chapter 4 of this Handbook). The cost
approach can not be performed for a condominium unit.
1. Sales Comparison Approach
The appraiser should obtain sales data from any
other units in the project and from other
competitive condominium projects, including
adjustments because of site factors, such as:
o differences in views from the unit
o proximity to recreation areas (swimming
pools, clubhouses, tennis courts, etc.)
o proximity to odors and the nuisance of
incinerators proximity to garbage chutes or
refuse areas proximity to noisy pumps or
boiler rooms
Adjustments must also be made for the following:
o differences in physical improvements within
the dwelling that have been made by the owner-
occupant
o differences in preferences of purchasers
between upper and lower floors and all other
site factors
6/99 9-3
