A Delaware buyer is purchasing a condominium unit in a New Castle County common interest community for $400,000. The seller negotiated that the buyer will pay the full realty transfer tax rather than the standard 50/50 split. The local jurisdiction charges the maximum allowable local rate. The buyer's lender is requiring an appraisal, and the appraiser notes that the unit is subject to a recorded deed restriction limiting the property to owner-occupancy use. Which of the following best describes how this deed restriction most directly affects the buyer's financing?
Correct Answer
B) The deed restriction may limit the lender's assessment of the property's marketability and resale value as collateral, potentially affecting loan terms or appraised value.
A recorded deed restriction limiting a condominium to owner-occupancy use directly affects the property's marketability as an investment or rental property, which lenders consider when evaluating collateral. If the property cannot be rented or resold to investors, the pool of potential future buyers is reduced, which may negatively impact the appraiser's assessment of market value and the lender's collateral risk analysis. This can affect the loan-to-value ratio, interest rate, or even the lender's willingness to fund. Under the Delaware Uniform Common Interest Ownership Act (25 Del. C. Chapter 81), such restrictions in common interest communities are legally enforceable and must be disclosed, making them material to both the appraisal and underwriting process.
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Related Topics & Key Terms
Key Terms:
Related Concepts
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Usury laws protect borrowers from excessive interest charges on loans.
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