19 May Are There Title Restrictions on VA Loans?
Borrowers searching their choices with the VA loan program will discover that the Department of Veterans Affairs will not warrant loans that restrain the borrower’s capability to sell or dispose of the property. Any condo, duplex, or other community-property arrangements must not have association agreements or bylaws that would limit the VA borrower from freely selling that property.
Some condo schemes have a condition in their association paperwork or other accommodations, known as the “right of first refusal.” This condition can be a challenge for those who wish to buy a condo project on the VA certified list. However, there are a few cases where something may be seen as a title restriction that may not fundamentally hinder the VA loan process.
According to Chapter Nine of VA Pamphlet 26-7, “VA may warrant a loan on which a title limitation restricts the lease, sale or occupancy of the residence to persons based on age, including a ban against the permanent possession of the dwelling by children, provided such restriction complies with applicable Federal law.” The last portion of that sentence is substantial.
Also, “VA may decline to approve a property with an age restriction if its enforcement would work an undue difficulty upon the owner in the case of unexpected, unforeseen events or be likely to end in an increased risk of loan default.”
Chapter Nine also recommends that title restrictions may not even need VA approval, depending on the limitations. “Title to the property, including reasonable encroachments, easements, servitude, and reservations for water, timber, or subsurface rights, usually do not require VA approval. However, they must be taken into concern in defining reasonable value.”
Such constraints may require further review by the Department of Veterans Affairs. “If any of these restrictions affect the basic livability of the property, VA approval is needed.”
And also, “Title limitations or conditions must be presented on the NOV and analyzed by the appraiser in determining the fair value of the property. If the lender finds, before loan closing, title conditions, or limitations not presented on the NOV, the lender must have VA evaluate the provisions and define whether the value assigned to the property is materially affected.”
If you are not sure about the effects of a specific title restriction or whether it is allowed or not, contact the VA directly for assistance.