What is a Planned Unit Development (“PUD”)? This question has been coming up lately in the banking department at Adam Leitman Bailey, PC. It is important to understand what a PUD is when closing mortgages as there are certain steps a bank attorney must take to ensure the lender has perfected its lien accordingly.
So, what is a PUD? A PUD is made up of several one family homes, they can also be condominiums or townhouses, both residential and commercial. The surrounding property is maintained by a Homeowner’s Association (“HOA”) reserved for use only by the owners of the homes within the PUD. The homes are all built together and can look like a small village or town or apartment complex. The homeowners own both the home and the lot on which it sits and will pay dues to the HOA, usually monthly, to maintain and upgrade the surrounding property and its amenities. This HOA fee is mandatory for the homeowners.
What are some amenities you may find within a PUD? The streets and landscaping may be maintained by the HOA rather than tax dollars. There may be a gated entrance, a pool, security, basketball and/or tennis courts, children’s activities and more.
All PUDs will have an HOA. However, there are HOAs which are not PUDs. You may live in a home which belongs to an HOA only, HOA fees can be mandatory or optional, PUDs are mandatory. An HOA only home will have fees that contribute to neighborhood amenities such as a pool, playground, or landscaping, but are not within a PUD. A PUD will also most times have a recorded declaration in the county clerk’s office.
If a home is determined to be within a PUD, a lender giving a mortgage will need to take some additional steps in the loan process. The lender will need to collect additional documents and financial information to approve the PUD and the home for lending. What are lenders looking for? They will look at the reserves, delinquencies, if any, and how many residential vs. commercial units there are. The lender will then assess how much risk is associated with lending on the home within the PUD and issue an approval or denial. This should not slow down the mortgage process and is addressed early in the approval stage.
If approved, the loan will move to closing. At closing the bank attorney will have a PUD rider signed and added to the mortgage and will obtain a PUD endorsement to the lender’s title insurance policy.