FHA Condo Approvals – Manufactured Housing Condo Projects
[Note: article has been updated to reflect current FHA guidelines. See below.]
In certain parts of the country, Manufactured Housing Condominium Projects (MHCPs) are prevalent. Typical ownership of this fashion is where the unit owner owns the manufactured home and may own the ground on which it sits.
Manufactured Housing is a different category of housing than modular homes. This article by John DL Arendsen will give you more information than you would ever need to know about manufactured and modular housing and does an outstanding job of explaining the differences.
MHCPs may be eligible for an FHA condo project approval. FHA requires that these approvals be processed via HRAP (directly through HUD) and cannot be reviewed and approved DELRAP (by a lender). FHA also states that MHCPs cannot be handled as “site condos”. [As an aside, FHA does not differentiate between modular and stick-built homes.]
One common feature of a site condo (and is a requirement of FHA to be deemed a site condo) is that the unit owners are to be responsible for the insurance, maintenance and upkeep of the interior and exterior of the unit. This is common trait of MHCPs as well.
A call that I received yesterday from a mortgage lender in California was about this very topic. She said that her mother-in-law lives in an MHCP and was trying to obtain a reverse mortgage. However, she could not do so due to FHA rejecting the condo project because the unit owners pay for the insurance of the units.
For MHCPs, FHA requires that the Homeowners Association be responsible for the exterior of the units and fund the insurance for the units. This requirement is for all condominium projects consisting of 5 or more units. Therefore, in order for this project to be eligible for an FHA condo approval (and for her mother-in-law to obtain a reverse mortgage), the HOA would have to pay for the insurance for the units.
She mentioned that this is a major issue because the HOA will not pay for the insurance of the units. The result is that her mother-in-law may end up in foreclosure if the reverse mortgage cannot be obtained. Unfortunately, to my knowledge, there is no work around for this insurance issue.
[Update: FHA is now allowing a waiver for MHCPs that do not have master insurance policies as mentioned above. If the MHCP unit owners provide for the insurance of both the interior and exterior of the unit, this is now acceptable to FHA.]
It would come as no surprise that part of FHA’s job is to mitigate risk. Because of the design and construction of the manufactured housing, it creates a higher risk. FHA tries to mitigate this risk by handling manufactured housing differently than site condos. Requiring that the HOA pays for the insurance for the units is one method of doing so.
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