'Reverse' Condo Conversion Leaves Dozen Unit Buyers Living In Rental Complex, Unable To Refinance, Holding The Bag

In Polk County, Iowa, the Des Moines Register reports:

• A bank foreclosure of a Johnston condominium development originally owned by Regency Homes has resulted in 12 condominium owners allegedly losing their ability to refinance and possibly even sell their homes, a lawsuit filed Monday says.

• "This is the classic case of individuals buying property believing what they have been told and then through no fault of their own, they must deal with a completely different situation," said Jon Hoffman, the condominium owners' lawyer. "They needed to have their rights protected."

• The 12 owners are residents of two condominium buildings in the Providence Pointe development in Johnston. They claim in the lawsuit that officials for Two Rivers Bank and Trust and Brent Haverkamp, owner of the Ames-based Haverkamp Properties, are guilty of breach of contract and breach of fiduciary duty in their handling of the development after the collapse of Regency Homes, the development's original owner.

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• Providence Pointe, established in 2007 originally as a condominium development, has been converted into an apartment complex by Haverkamp. He obtained the development from Two Rivers after Regency officials defaulted on a $6 million construction and development loan in 2008, according to the lawsuit.

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• Hoffman said Haverkamp's ownership of most of the property surrounding the condominium buildings has placed his clients in the nightmarish position of being unable to obtain refinancing for their homes from the Federal National Mortgage Association. Since January 2009, FNMA regulations have required that mortgages for condominiums can only be approved if 70 percent of the units are sold or under a sales contract.

• Hoffman said three clients have attempted to refinance their mortgages only to be rejected by their banks because of Federal National Home Mortgage rules."That is what really started this lawsuit," Hoffman said. "All three got the same rejection letter, and it was a form letter."

• The lawsuit also contends that the inability to obtain financing for their homes also raises the concern that "the only possibility for a sale would be to a cash purchaser as all lenders would be precluded from extending a loan for the same reasons they cannot obtain refinancing."

• "My clients believe the bank simply should have known that by selling this property to one individual for the purpose of turning into rental property that it was going to affect a lot of people adversely," Hoffman said.

For more, see Johnston condo owners in a tough spot, lawsuit says.