What Is a PUD Rider in a Mortgage Agreement?

A Planned Unit Development (PUD) rider is a document attached to a mortgage or deed of trust when a property is located within a planned community. This addendum incorporates additional terms and conditions into the loan agreement, specifically addressing the unique aspects of owning property in such a development. It clarifies the borrower’s responsibilities beyond those of a standard single-family home and establishes how the mortgage interacts with the community’s governing structure and shared amenities.

What is a PUD Rider

A Planned Unit Development (PUD) refers to a community that can include various housing types. In a PUD, homeowners own their individual dwelling and the land it sits on, distinguishing it from a condominium where common areas are often owned jointly by the association. Every homeowner within a PUD is a mandatory member of a homeowners’ association (HOA) that manages the community’s shared spaces and services, imposing rules to maintain property values and community standards.

A PUD rider is an addendum to a mortgage or deed of trust, required when a property is part of a planned community. It extends the primary mortgage, incorporating additional terms related to the PUD. Its purpose is to ensure the mortgage agreement accounts for the borrower’s obligations concerning shared common areas and HOA responsibilities, clarifying how the mortgage applies to this unique ownership structure.

Why a PUD Rider is Required

Lenders require a PUD rider to protect their investment in properties located within planned communities. Unlike traditional single-family homes, properties in PUDs come with inherent obligations to a homeowners’ association (HOA) and shared common areas. The rider ensures that the borrower’s duties related to the HOA, such as paying assessments and adhering to community rules, are legally binding under the mortgage terms. This is important because unpaid HOA dues can result in liens on the property, which could impact the lender’s collateral.

The PUD rider clarifies responsibilities for maintaining common elements and complying with the community’s covenants, conditions, and restrictions (CC&Rs). These rules directly affect the property’s value and marketability, which are central to the security of the loan. The rider allows the lender to monitor the borrower’s adherence to these PUD-specific obligations and take action to prevent situations that could jeopardize the property’s condition or the lender’s interest.

Key Provisions of a PUD Rider

A PUD rider details several specific clauses governing the borrower’s relationship with the planned unit development and its homeowners’ association. It obligates the borrower to perform all duties under the PUD’s “Constituent Documents,” including the Declaration, articles of incorporation, and bylaws. The rider specifically requires the borrower to promptly pay all dues and assessments imposed by the HOA.

Should the borrower fail to pay these HOA dues and assessments, the PUD rider grants the lender the right to pay these delinquent amounts on the borrower’s behalf. Any sums disbursed by the lender become additional debt secured by the mortgage, accruing interest from the date of disbursement at the original mortgage note rate. This mechanism protects the lender’s interest in the property by preventing the accumulation of liens from unpaid assessments.

The rider addresses hazard and public liability insurance. If the Owners Association maintains a master or blanket insurance policy acceptable to the lender, the borrower’s individual obligation to maintain certain property insurance coverage may be waived. This master policy covers the common elements and facilities of the PUD, while individual homeowners remain responsible for insuring their specific unit’s interior and personal belongings.

The rider also assigns to the lender any proceeds from awards or claims for damages due to condemnation or taking of the property or common areas. Finally, the rider may require the borrower to obtain the lender’s prior written consent for certain actions, such as abandoning or terminating the PUD, or amending constituent documents that are for the express benefit of the lender.