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Laguna Woods disputes co-op lending monopoly

Research shows, however, just one lender has accounted for 99% of all co-op loans in the senior living community.

By Jeff Lazerson

7/11/19

First of two parts

I got a plethora of responses to my April 28 column about a lack of competition for real estate loans to Laguna Woods co-op owners.

Column recap: The senior residence community of Laguna Woods includes fee-simple condos and more than 6,300 co-operative or co-op housing. Unlike fee-simple condos, co-op buyers purchase a share in the co-op corporation, but don’t directly own the real estate they live in.

Several local real estate settlement service providers told me National Cooperative Bank, or NCB, was the only Laguna Woods approved co-op lender for the past 10 years.

Data from Black Knight Inc. indicated NCB funded 99.4% (940 of 946) of all Laguna Woods institutional co-op mortgages over the past decade.

I compared NCB’s mortgage rates with a local co-op lender (not Laguna Woods approved) and found NCB to be 1.5% higher for about the same cost.

Laguna Woods officials objected, claiming the column contained “misinformation and misconceptions” and disputing my premise about a lack of competition among co-op lenders.

Laguna Woods objections were distributed in a May 2 memo to real estate professionals and in a letter to the editor published in the Laguna Woods Globe. I also received a May 1 letter from Juanita Skillman, a Laguna Woods co-op owner and board president of the non-profit housing cooperative that owns and manages the village’s co-ops, United Laguna Woods Mutual.

Skillman said none of the co-op shareholders had mortgages, although some did take out “personal loans” to finance their homes.

“The majority of United share purchases are all cash. Any type of financing would be a personal loan,” Skillman’s letter said.

Laguna Woods does nothing to limit the number of lenders, the letter added, but does require all lenders agree to a “caveat” that debts owed to the cooperative get paid first should a shareholder default.

“United Laguna Woods Mutual has not banned other lenders, and there is no monopoly,” the letter stated. “Any institutional lender may apply to United, and the mutual decides to accept a lender based on the lender’s ability to fund the personal loan and agreements to meet the mutual’s caveat.”

One other lender agreed to the cooperative’s terms, then pulled out, Skillman wrote. No other lenders have “followed through to become approved.”

After reviewing the Laguna Woods’ complaints, I spent about 40 hours researching this issue, meeting with Laguna Woods officials, interviewing well over a dozen individuals and reviewing hundreds of pages of documents.

What I found:

· There are in-fact Laguna Woods co-op mortgages – or to be precise, “deeds of trust,” the term used for California’s version of a mortgage.

· While the Laguna Woods cooperative may permit others to issue home loans to shareholders, there’s conflicting information about its terms and restrictions. At any rate, Laguna Woods shareholders today have just one lender they can use: NCB.

· At least one other lender has been turned away by the Laguna Woods co-op – not because it wouldn’t agree to Laguna Woods’ “caveat,” but because it’s not a depository institution with accompanying FDIC or National Credit Union insurance.

· Numerous Laguna Woods shareholders contacted me in the weeks since the original column was published complaining about the lack of financing options available to them. But — with just two exceptions – all declined to let me share their stories because they feared reprisals. (More on that next week.)

I did get it wrong in the first column that NCB was the only co-op lender in the last 10 years.

PNC Mortgage LLC (PNC Bank) funded four co-op mortgages between 2010 and 2013, according to Black Knight.

VA Desert Pacific Federal Credit Union made a co-op mortgage as a one-off favor to a credit union member in May 2016.

And in December 2018, Credit Union of Southern California provided a home equity-line-of-credit to one co-op shareholder.

With help from a title company, I located two publicly recorded “recognition agreements” spelling out terms the cooperative and lenders signed off on.

But we couldn’t locate one for Credit Union of Southern California. And, oddly enough, at least one of the PNC mortgages was recorded prior to the recording of its recognition agreement.

So apparently, loans were made without the “caveat” the cooperative requires.

Pamela Bashline, the Laguna Woods community services manager, said PNC stopped funding co-op loans when its attorney decided its recognition agreement was unacceptable and pulled out.

I met on June 19 with Jeffrey Parker, CEO of Laguna Woods Village, Eileen Paulin, marketing and communications, and Bashline.

During the meeting, the Laguna Woods officials explained there’s a lack of willingness from other lenders (other than NCB) to sign their recognition agreement.

The group also supported the notion that these are personal loans per Skillman’s letter.

However, I disputed that assertion and provided a copy of Skillman’s own home loan — a deed of trust — to show the similarity between co-op financing and ordinary homes loans.

I also explained to Parker, Paulin and Bashline that a depository bank or credit union is a non-starter when it comes to mortgages. Nowhere in America must a mortgage lending institution accept deposits. When I asked Parker how this line of reasoning for denial could happen, he said, “I think it’s based on the past practices they’ve had in United.”

It’s possible we may not be able to get to the bottom of the reasons behind NCB’s exclusivity in Laguna Woods.

It could be nobody but NCB will swallow Laguna Woods’ conditions, as Laguna Woods officials say. It could be restricting loans to depository institutions eliminates some willing lenders from participating.

Whatever the reason, NCB accounted for almost all of Laguna Woods institutional co-op “deeds of trust” — whether you call them mortgages, personal loans or thingamajigs.

And that’s hurting senior co-op borrowers.

Next week: We look at how limited loan options affect Laguna Woods borrowers.

Mortgage broker Jeff Lazerson can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.