For the last two and a half years, John and Deena Baird have been trying to secure a reverse mortgage on their home in Sun City, Ariz., a 55-and-over retirement community northwest of Phoenix. But due to an obscure Federal Housing Administration rule, they’ve been unable to close the deal — and they aren’t alone.

“To be quite candid with you, when I’m down to one fixed income, I can’t live here,” Deena Baird, a retired dental assistant and mother of four, told RMD.

This past spring, RMD brought you the story of potential borrowers stymied by so-called “free assumability” restrictions regarding the transfer of housing titles. In communities such as Sun City, this is a major issue for homeowners who want to purchase or refinance using FHA-backed products. 

That’s because all buyers in these communities are required to pay a fee, generally $3,000 or $3,500, to the private Recreation company that oversees shared recreation facilities, such as pools, golf courses, and communal activity centers. The fee usually applies even if children inherit the home from a parent, or if a lender takes control of the property through foreclosure.

FHA thus will not insure properties that have such recreation covenants, as it would mean the government would be on the hook for maintaining facilities unconnected to the property itself. As a result, reverse and other FHA lending has essentially ground to a halt in these communities.

Since RMD last reported on this issue in July — when the Department of Housing and Urban Development rescinded the “free assumability” restriction for condos but not standalone homes — there has been some progress, according to Liz Recchia, government director of the West Maricopa Association of Realtors in Peoria, Ariz.

Thanks to lobbying work from local residents, lenders, and real estate agents, the Westbrook Village development in Peoria updated its rules to exempt recreation fees on foreclosed properties, Recchia said.

Barry Law, a loan officer at Retirement Funding Solutions who has worked with the Bairds on securing their loan, said he’s also seen similar success in the Arizona Traditions community in Surprise, Ariz, where he recently closed a reverse loan.

But change remains slow at Sun City and Sun City West, which as of press time have yet to amend their rules.

“This was a huge thing for them to get this done,” Law said of the Bairds. “And unfortunately, there’s nothing I can do — or any company out there can do — just because of that.”

Michael Whiting, Sun City West’s general manager, told RMD that his group does not intend to changes its policies or bylaws, and is instead waiting to see if HUD will work to update its requirements. Sun City West’s attorney has been in touch with HUD on the issue, Whiting said.

Jan Ek, general manager of the Recreation Centers of Sun City, Inc., said that group maintains the same position as Sun City West, and has also been in communication with HUD on the issue.

A HUD spokesperson did not respond to a request for comment for this article.

Success, according to Recchia, can only come through presenting a united front before recreation center boards, whose members may not necessarily be familiar with complex FHA transactional rules — or realize that the problem extends beyond one or two stray homeowners.

“People go before the rec center board, and they feel like they’re the only person with this problem — which, of course, is not true,” Recchia said. “There’s a lot of them with this same problem.”

The process at Westbrook Village took only a few months, with Recchia’s organization providing sample language that eventually became part of the group’s official guidelines within a few months.

“They didn’t realize they had a problem,” she said.

The Bairds, meanwhile, remain in limbo in Sun City. Deena and John, who served in the Air Force, actually had a reverse mortgage on their previous home in Mesa, Ariz., which they originated with no issues. The extra money would come in handy given their fixed incomes, Deena Baird told RMD, as well as rising utilities costs in Arizona.

“It was so terribly convenient for us, personally, with our finances to work it that way,” Deena Baird said of her previous experience with a Home Equity Conversion Mortgage. “And we just don’t understand what the hangup is in Sun City.”

Written by Alex Spanko