FHA Certification/Approval for Condos

Has anyone else been going through this? Any ideas? Our FHA certification was to have expired in Dec/2010, then FHA extended until May 2011, but in spite of all the warnings and letters, our COA board and PM has yet to get our Condo's recertified by FHA. The board says that they pass the 7 vetting questions, but they seem just be dinking around. First that said that the attorney, and auditor were handling it, then they fired the attorney and auditor, then they hired another attorner and another auditor. Then they said that the new attorney is handling the approval process and application. Then this week, we hear that the attorney says.. "oh no, this is only done by specilists" and he said that he could not do it. Meanwhile Convential money is tight and the days of 5% down.. are gone. FHA enables 3% down, higher qualifying ratios and the loans can go up to like $729,725. FHA loans are huge now and now having approval knocks out 30% of the market.

The cost of paying a specialist to process the paperwork for FHA is about three dollars a door in our community, so I can't see why they would refuse to recertify. We purchased the home twenty years ago when it was approved for FHA and we feel that they should maintain the certification.

The board has an obligation to preserve the value of the community, protect the interests of the owners in addition to maintaining and enhancing the value of the assets of the commmunity. Their failure to act with Due Diligence in this matter and I feel that they are negligent at this point. I'm wondering how many COAs are opening themselves up to litigation after homeowners take huge losses on the sale of their home.

FHA loans represent almost half of all new loans and in some areas account for 75 percent or more of first-time home purchases. Condos for sale in non-FHA approved associations may prove extremely difficult to sell and will generally sell at lower prices as a great number of potential buyers will be excluded. FHA loans require a low down payment (3.5%) and less-than-perfect credit. Unlike other mortgages, FHA loans are fully assumable. When a seller with an FHA loan sells his or her property, the loan and its financing terms (interest rate) can be transferred to the new buyer, which will certainly make a property more valuable and easier to sell in times of rising interest rates.

With the elimination of spot approval in February 2010, it is now an absolute requirement that an entire condominium development have FHA approval in order for any FHA loans to be funded. Prior to this date, there was little incentive for a condominium association to obtain FHA approval since HUD allowed "spot approvals," a mechanism which allowed a buyer to use an FHA loan for the purchase of a unit within an unapproved association, as long as no more than ten percent of the units located in the association had FHA-insured mortgages.

Technically, FHA approval lasts for only two years but until recently this rule was never really enforced. FHA loans were permitted in condo developments that obtained their approval as far back as the early '70s.

But due to the huge increase in FHA's market share, HUD and FHA toughened standards in many areas and set up timetables for taking fresh looks at projects before sanctioning additional unit financings.

FHA officials issued notices during the past year to lenders, condo-management companies and consulting firms, warning them that condo developments approved by FHA before October 2008 would have to submit information required for renewed approval by Dec. 7, 2010 or lose eligibility for FHA financing.

Also, keep in mind that FHA requires that 10% of your operating budget should be going into reserves!

MikeS1

I suggest that you research a bit further. I am not sure that a Condominium MUST be pre certified.

The last time I looked into this subject, if I remember correctly - the only requirement was that if someone was attempting to secure a FHA backed Mortgage – then at that time the Association had to provide answers to those questions, when requested.

The reason for “certification” was so that the Condos could be advertised as being certified.

If you are a large number of Condominiums, then maybe yes a good idea. Also I seem to remember something about it costing a fair of money to do so – as it was not a “do it yourself” thing, but had to be done by a “professional”.

This past year we had had a couple of Condo Units change hands – and we just supplied the answers plus the back-up paper work, when requested by the person trying to get FHA backed mortgage approval, and/or when the Bank or Lending Institution requested the information.

So long as you are able to provide the answers that you (Association, Management Company) meet the requirements – which are basically as you listed - then all should be OK.

However, if your Association falls short – then there is work to be done to correct any shortcoming.

Ellie - Just google Condo FHA certification or go to the HUD site and look up FHA certification - It's all over the web.

Every since 2010, everyone was notified and reminded that the old blanket approval was going to expire.

Without FHA, you're losing 50% of the market. It's going to be expensive to recert, but I would think that it's a must situation. The banks are not doing 5% down loans any longer, qualifying ratios are very tight 28/33 as opposed to 33/38 on FHA loans. FHA is not longer just for low end loans. The go up to like 725K. The feds gave all that bail out money to the banks and now the banks won't lend it out. Note: There is company in CA that charges around $1,200, (plus $300 attorney fee) and he doesn't charge the $1200 if FHA declines to approve the application. Then after that, the COA must recert on a streamline basis every two years and it's only $600 to recert, once the initial cert is done.

The board has an obligation to preserve the value of the community, protect the interests of the owners in addition to maintaining and enhancing the value of the assets of the commmunity. Their failure to act with Due Diligence in this matter and I feel that they are negligent at this point. I'm wondering how many COAs are opening themselves up to litigation after homeowners take huge losses on the sale of their home because the Board is too lazy to et this done. Right now we don't see Due Dilegence. What I see is Negligence per se.

MikeS1,

I agree there is a lot of information “out on the web” which is why I commented as I did. I wanted to make sure that you had found the latest Mortgagee Letter effective August 29, 2011 – and some of the “reaction to it”.

For anyone interested here are a couple of links to that latest letter:

http://portal.hud.gov/hudportal/documents/huddoc?id=11-22ml.pdf

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-46bml.pdf

Also, there is quite a bit of written/published commentary “out there”. For example the below is a quote from this newsletter:

http://www.reesbroome.com/community/August_2011.pdf

“The applicant is required to make 3 certifications regarding the project:

1) The project meets all state and local condominium laws and FHA approval requirements;

2) To the best of the submitter’s knowledge, the information and statements contained in the application are true and correct; and

3) The submitter has no knowledge of circumstances of conditions that might have an adverse affect on the project or cause a mortgage secured by a unit in the project to become delinquent, such as defects in construction, substantial disputes or dissatisfaction among unit owners about the operation of the project of the association, etc. The submitter must continually notify HUD of any material information that was submitted is no longer true or correct.

This third certification is new and very onerous. Not only does the applicant have to certify the validity of the information being submitted, he or she also must certify that there are no owner “disputes or dissatisfaction” about the operation or management of the Association.”
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For anyone interested in the topic, here are two more links to “published commentary” re the FHA’s Mortgagee Letter 2011-22 on the subject of certification to this latest FHA letter: (as being different from certification to the earlier FHA’s Letters) – WHICH MIGHT MAKE SOMEONE “THINK TWICE”.

http://www.kmklawyers.com/Articles/10-21-11-New-rules-for-FHA-financing-hold-pitfalls-for-condominium.shtml

http://www.meeb.com/meeb-legal-alerts/fha%E2%80%99s-revised-condominium-guidance-solves-some-problems-but-creates-many-more/

And while I was typing this reply to post I received this newsletter – and on this very topic of certification.

http://www.cohoalaw.com/community-association-news-denver-post-covers-impact-of-fha-certification-on-condo-market.html

Might be the Devil's Advocate here, but notice the main references are from legal firms throwing up the 30 years in prison and $1M fines as in hire us, we can handle it.

Ellie

While I am not advocating lying, are not the FHA questions realtively straight forward, simple, and answerable by most any "intelligent" BOD without the need of "lawyering up"?

John - It's not just a matter or answering questions. Your documentation that goes with the application must be spot on. Some of these land records cannot be copies of what you already have in hand. You must go to land records at the county and request certified copies.

What Documents Must a Condominium Association Submit to HUD toObtain Certification?
In order to qualify for FHA financing, HUD has developed a list of required documents each association must submit before certification will be granted. The
attachment to FHA Mortgagee Letter 2009-46B (attached hereto), contains a chart that shows what documents are required, depending on an association’s status as an existing condominium, proposed condominium, a condominium under construction or condominium conversions. The requisite documents for most condominium associations include the following:
1. The condominium’s recorded plat.
2. The association’s governing documents (Declaration, Bylaws, and Articles of Incorporation).
3. Recorded site plans for the project.
4. A plan or evidence of transfer of control of the condominium to unit owners.
5. A proposed or actual budget.
6. Any existing management agreement.
7. Any applicable FEMA flood map.
8. An analysis of any outstanding or pending litigation.
9. An analysis of any pending special assessment.

So Ellie - Is your condo association currently approved for FHA? If so, when did you reapply and when was it approved.
If you're not sure, you can look up your condo Assoc on this hud site and it will tell you whether or not you are approved.
https://entp.hud.gov/idapp/html/condlook.cfm

Our HOA (standalone patio homes) is not on that list either, but I do know we have had two homes sold with FHA financing within the last 6 months. As the developer still controls our HOA I expect he has been answering any FHA questions/filling out any forms and/or his lawyer is thus it appears there are no issues.

Mike

I need to check but to the best of my recall, one of our units sold was FHA financed less then 60 days ago so as you say, when did/do the changes take effect?

Thanks

John - If you want to check the status of your community, use this link.
https://entp.hud.gov/idapp/html/condo1.cfm

Most communities lost their cert in May 2010. Spot approvals were discontinued in Feb 2010.

FredB4,

As a point of interest – do you know whether you “started your approval process” before or after the Mortgagee Letter 2011-22 effective August 29, 2011.

FredB4,

I have been following this topic for awhile – however, all I really know is what I have read – and in my previous posts, I have shared sites where I found information.

As to “why not just permanently change the requirements” – apparently this is “not easy” - see the last two links at the end of this post, to CAI (Community Associations Institute) letters to the Federal Housing Commission.

FYI - Mortgagee Letter 2011-22 applies to Condominiums. It starts off:

“Date: June 30, 2011
To: All Approved Mortgagees
Mortgagee Letter 2011-22

Subject: Condominium Approval Process for Single Family Housing – Consolidation and Update of Approval Requirements

Purpose: This Mortgagee Letter (ML) and the attached Condominium Project Approval and Processing Guide (Guide) consolidate and update the requirements and procedures that constitute the Condominium Approval Process. This ML and the Guide clarify, expand, consolidate and update existing guidance, and replaces MLs 2009-46 a, 2009-46 b and 2011-03.”

Here is a link:

http://portal.hud.gov/hudportal/documents/huddoc?id=11-22ml.pdf

Another source which points out the problems with 2011-22 is a “real” letter dated July 25, 2011 written from CAI to the Federal Housing Administration, and a later letter dated October 12, 2011 – links below:

http://www.caionline.org/govt/news/Political%20HeadsUp%20Public%20Document%20Library/FHA%20Letter%202011-22.pdf

http://www.caionline.org/govt/news/Political%20HeadsUp%20Public%20Document%20Library/CAI_to_Galante%20(waiver%20request)--10-12-11.pdf