FHA Condominium Association Certification Penalties

QUESTION: We received notice that our FHA certification expired. It came from a company offering to help us get recertified for a fee. Is there a cost effective way to get our association recertified?

ANSWER: You can minimize expenses by doing the certification yourself. Unfortunately, FHA certification can be daunting. That is why there is now a small cottage industry of companies that specialize in helping condo developments through the certification process. Whichever route you choose, you should be aware of the burdensome requirements imposed by the FHA.

Certification Requirements. FHA documents require an authorized association representative to certify that:

1. They reviewed the project and it meets all state and local condominium laws and all FHA condominium approval requirements.

2. They have no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit in the project to become delinquent (including but not limited to: defects in construction; substantial disputes or dissatisfaction among unit owners about the operation of the project or the owners association; and disputes concerning unit owners, rights, privileges, and obligations).

These overbroad requirements create huge openings for the FHA to come after the signer of the certification if any FHA insured loans become delinquent. The above is scary enough but then the FHA tacks on the following:

3. The submitter understands and agrees that the submitter is under a continuing obligation to inform HUD if any material information compiled for the review and acceptance of this project is no longer true and correct.

Does that mean every time an owner is unhappy and threatens to sue the association, the board must immediately file an amended application with the FHA? I think it does. That means failure to timely notify the FHA could result in penalties against the signer of the certification. The penalties are significant.

Penalties. The FHA has the power to impose fines up to $1,000,000 plus prison time if the certification documents contain "any false, fictitious, or fraudulent statement or entry." That poses enormous exposure to directors who sign FHA documents if any of the three provisions are violated.

RECOMMENDATION. The onerous certification requirements and heavy handed penalties have created roadblocks to the housing industry's recovery. CAI National has been meeting with HUD/FHA officials for months trying to talk sense into them. According to some news reports, FHA is going to modify the personal liability language in the near future. If it were me, I would not sign the current FHA certifications. It creates too much exposure. I would wait for a loosening of the FHA requirements. But that is something for boards to work out with their legal counsel.

_____________________________________

This article is reprinted from Davis-Stirling.com by Adams Kessler PLC