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FHA Condo Spot Approval Checklist

By Bill Ladewig

Mortgage and Lending with LoanOfficerSchool.com NMLS 291249

November 23, 2009 01:10 AM

Elimination of FHA Condominium Spot Approval Delayed Again.

Lender spot approval was scheduled to end after several delays on December 7, 2009, the elimination of condominium spot approval has been delayed until February 1, 2010.

Implementation of FHA new condominium project approval process is delayed again to December 7, 2009. It was originally to go into effect on October 1 then delayed until November 2, 2009. So if December 7, (an auspicious date indeed) is the date then at that time individual lenders will begin to approve each condominium project.

FHA Mortgagee Letters 2009-46 A and 2009-46 B describe the new approval process in detail.

Below are the questions needed for a FHA condo spot approval up to February 1, 2010

FHA Condo Spot Approval Check List

_______ 1. The legal documents of the homeowners association do not contain a right of first refusal or restrictive covenant.

_______ 2. The unit is part of a condominium regime that provides for common and undivided ownership of common areas by unit owners.

_______ 3. The project, including the common elements, and those of any Master Association, are complete, and the project is not subject to additional phasing or annexation.

______ 4. (a) There are no special assessments pending.

______      (b) No legal action is pending against the condominium association, or its officers or directors.

______ 5. The common areas have been under the control of the homeowners association for at least one year.

______ 6. At least 90 percent of the total units in the project have been sold.

______ 7. At least 51 percent of the total units in the project are owner-occupied.

______ 8. There are no adverse environmental factors affecting the project as a whole or individual units .

______ 9. No single entity owns more than 10 percent of the total units in the project.

______ 10. The units in the project are owned in fee simple or the units are held under a leasehold acceptable to FHA.Leasehold in file.

______ 11. The owners association has adequate common area insurance coverage. General liability, replacement coverage, etc. reflects the character, amenities and risks of the particular development. Flood and other insurances carried, when applicable.

______ 12. General maintenance level of common elements is acceptable and there is no deferred maintenance, based on the comments by the Appraiser and/or the pictures.

______ 13. The owners association has a reserve plan and a reserve fund, separate from the operating account, that is adequate to prevent deferred maintenance. The amount of the fund is $_________ as of __________.

_______14. (a) For projects consisting of over 30 units, no more than 10 percent of the total units are encumbered by FHA insured mortgages.

_______     (b) For projects consisting of 30 units or less, no more than 20 percent of the total units are encumbered by FHA insured mortgages.

____________________________________     ________________________
       (Mortgagee)                                            (Reviewer)
____________________________________     ________________________
       (Address)                                               (Title)
____________________________________     ________________________
                                             (Date)
__________________________________        _______________________
(Condominium Project Name)                       (FHA case number)
__________________________________
(Condominium Address)
__________________________________

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Elizabeth Helton

RE/MAX of Orange Beach - Orange Beach, AL

How is 'Owner Occupied' defined by FHA?

Jun 11, 2009 03:38 PM

Tim Bradford

Cleveland, OH

NMLS 250013

Bill, what changes will you be making as a result of ML09-19? I have highlighed two key items in my opinion. I am sure part of the answer is how the lenders will permit spot approval.

Condominium Approval Process - Single Family Housing

Project Eligibility Requirements

A. The following requirements apply to all Condominium Project approvals:

Projects consist of two units or more.

Projects must be covered by hazard and liability insurance and, when applicable, flood insurance.

 Right of first refusal is permitted unless it violates discriminatory conduct under the Fair Housing Act regulation in 24 CFR 100.

No more than 25 percent of the property's total floor area in a project can be used for commercial purposes. The commercial portion of the project must be of a nature that is homogenous with residential use, which is free of adverse conditions to the occupants of the individual condominium units.

No more than 10 percent of the units may be owned by one investor. This will apply to developers/builders that subsequently rent vacant and unsold units. For two and three unit condominium projects, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete; and only one unit can be conveyed to nonowner occupants.

No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payment.

At least 50 percent of the total units must be sold prior to endorsement of any mortgage on a unit. Valid presales include an executed sales agreement and evidence that a lender is willing to make the loan.

At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units. For proposed, under construction or projects still in their initial marketing phase, FHA will allow a minimum owner occupancy amount equal to 50 percent of the number of presold units (the minimum presales requirement of 50 percent still applies).

Legal Phasing is permitted for condominium processing. It is recommended that developers submit all known phases for initial project approval. For purposes of calculating the owner-occupancy percentage:

a. On multi-phased projects the owner-occupancy percentage is calculated on the first declared phase and cumulatively on subsequent phases if the ownership of the condominium project remains the same;

b. If multi-phasing includes separate ownership per phase, each phase is calculated individually; or

c. Single-phase condominium project approval requests must meet the owner-occupancy percentage requirement.

FHA Concentration

a. Projects consisting of three or less units will have no more than one unit encumbered with FHA insurance.

b. Projects consisting of four or more units will have no more than 30 percent of the total units encumbered with FHA insurance.

Reserve Study - a current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance. A current reserve study must be no more than 12 months old - if recent events or market conditions have affected the finished condition of the property that information must be included. When reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed.

Jun 16, 2009 02:21 AM

Bill Ladewig

LoanOfficerSchool.com - Escondido, CA

Experience Is Your Advantage

Hi Jill, I have never had a condo association management company refuse to complete the form. But, most of them charge around $100 to complete it.

Aug 27, 2009 11:48 AM

Anonymous

Charlton

Are there requirements for the minimum number of units in a condo association in order to qualify for spot approval under the regulations that are in place until 11/2?

I'm trying to buy a condo in a three-family that's been converted into condos. I haven't found anything in the regulations to specify one way or the other.

Sep 24, 2009 02:04 PM

Bill Ladewig

LoanOfficerSchool.com - Escondido, CA

Experience Is Your Advantage

Up to November 2, 2009 your three unit condo project is subject to current rules.

Sep 25, 2009 03:31 AM

Anonymous

Charlton

Right -- but what I'm trying to find out is, is it possible to get spot approval on one condo in a three-unit association under the old rules?

The regulations for spot approval do not make this clear one way or the other, and I can't get a straight answer from anyone I've asked.

Sep 25, 2009 06:55 AM

Bill Ladewig

LoanOfficerSchool.com - Escondido, CA

Experience Is Your Advantage

If any of the other units presently have FHA loans the answer would be no but otherwise yes, it will be up to your lender. Call several local lenders

Sep 25, 2009 06:59 AM

Anonymous

Steve Stenger

You cannot do a "spot" loan on a 3-unit because until the new guidelines take effect, FHA will only recognize condos that consist of 4 or more units. After 11/2 this condo will need FHA approval. I can help you with that. My consulting company, Condo Approval Professionals LLC, specializes in this area. I can be reached at steve@condo-approval.com or by phone at (847)293-2962.

Oct 21, 2009 03:01 AM

Tim Bradford

Cleveland, OH

NMLS 250013

FHA notice on delay in FHA condominium changes:

Implementation of FHA's new policy guidance for condominium project approval and condo unit financing will be delayed until December 7th 2009. The new guidance, to be issued within the next two weeks, will: 1) offer additional leniencies to address the difficult market conditions and 2) augment some portions of FHA Mortgagee Letter 2009-19, providing additional information and clarification.

Until the new guidance takes effect on December 7th, 2009 lenders may continue to use the Spot Loan Approval guidance issued in Mortgagee Letter 1996-41. Further, the site condo and manufactured housing condo project changes that have already been implemented are not affected by this delay.

Oct 21, 2009 08:55 AM

Bill Ladewig

LoanOfficerSchool.com - Escondido, CA

Experience Is Your Advantage

Thanks Tim for the information. I updated the post with your help.

Oct 21, 2009 10:16 AM

Allison Ables

Allison Ables Real Estate - Gainesville, FL

Gainesville Realtor

Thanks for the update... hopefully you lenders will know more soon and be more certain of the dates and all of the changes.

Oct 21, 2009 10:39 AM

Blake Rickels

Blake Rickels Group, Realty Executives - Knoxville, TN

"The Name Friends Recommend"

Thanks for the update! I am going to make sure all my condo sellers and buyers are aware of this!

Nov 23, 2009 12:40 AM

DALIA KIBBY

One Sothebys International Realty - Cooper City, FL

Selling Florida Homes with Passion!

Can it be more complicated? I've been working with another 1st time homebuyer who really likes some condos (or rather their prices) but local banks aren't financing in the ones I've shown him. I finally told him he needs to consider some townhomes or villas that aren't 'condos'. More money but at least they're possibilities. Great post!!

Nov 23, 2009 12:49 AM

Bonner Thomason

Keller Williams Realty - Kernersville, NC

CRS, ABR, GRI, e-Pro

What a matrix of confusion - What happen to straight foward.

Bonner

Nov 23, 2009 01:13 AM

Mike Morgan

Internet Marketing for Real Estate Agents and Brokers - Jensen Beach, FL

Thanks for the info. Down here on the East Coast of Florida we have a vibrant condo market and in some areas we can't get the financing on units.

Nov 23, 2009 02:28 AM