If you are buying a Condo here in Connecticut here is some helpful information you need to know about how Condo's and Mortgages work.
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FHA Condo Approvals – The Basics
Following a post from earlier this week, I was asked about the basics for FHA condo project approvals. Last month, I attended a training administered by HUD on this very topic. The training lasted all day and the information was considered “the basics” so please excuse my lack of details here.
The guidelines for FHA condo project approval can be found in the attachment to Mortgagee Letter 11-22 called the Condominium Project Approval and Processing Guide, or the “Guide” for short. Some of these guidelines were updated via Mortgagee Letter 12-18.
This is a [very] brief overview of the requirements for FHA condominium project approval. I have included links to other articles that provide more details.
FHA requires copies of all recorded legal documents pertaining to the project. This includes the Articles of Organization (or Incorporation), the Declaration, By-laws, all Amendments, site plans/plat map and building plans.
Watch out for Leasing Restrictions, Right of First Refusal and unit boundaries/insurance coverage. For projects with 5 or more units, FHA requires that the HOA pay for insurance for the exterior of the units.
FHA requests copies of the current operating budget, last fiscal year’s income/expense statement and a balance sheet dated within 90 days of submission. A detailed description can be found in this article.
A FEMA flood map must be provided to verify whether or not the project resides in a Special Flood Hazard Area and, if it does, it has the proper flood insurance.
A certificate of all insurance policies must be provided. FHA will verify that the hazard insurance includes building replacement cost coverage. If the project is more than 20 units, a crime policy – typically called “Employee Dishonesty” – must be included. The coverage of this policy must be equal to or greater than the total of 3 months’ aggregate common charges plus the amount held in the reserve account(s).
Property Management Agreement
If the project employs a property management company, a copy of the signed agreement must be provided.
Appendix E-1, E-2 and E-3 of the Guide are Cover Letters. The appropriate one must be supplied with every submission. Hard, signed copies are required. These documents convey much of the material facts about the project.
Appendix A: Project Certification
Mortgagee Letter 12-18 made obsolete the Appendix A located in the Guide. A revised Appendix A was included in ML12-18. It must be printed on the letterhead of the person who signs it.
Special Assessment/Loan Documentation
If the project has a pending or upcoming special assessment, certain information is requested by FHA regarding the reasons behind the assessment and its potential effects on the salability of the units.
If the HOA has an outstanding loan, additional information is required by FHA regarding the circumstances and debt load of the loan.
It is generally thought that pending litigation is the “nail in the coffin” for an FHA project approval but this is hardly the case. FHA wants to know the details of the litigation and whether or not there is proper insurance in place to cover the Complaint. The staff at the Philadelphia Homeownership Center could only think of one case that a slip-and-fall case resulted in a Rejection, and it was an extreme case. [A professional dancer suffered a career-ending injury and was suing the HOA for $10 million or so. Obviously, the HOA’s liability insurance wouldn’t cover a claim so high.]
I know that this only scratches the surface. If you have more detailed questions about any of these, please feel free to contact me.
Image courtesy of Stuart Miles/freedigitalphotos.net
The FHA Condominium Project Approval Team at ReadySetLoan is dedicated to helping condominium projects across the nation to obtain their FHA approvals or become recertified with FHA. We can help your project.
Please contact us with any questions regarding FHA condominium project approvals. You can email me at firstname.lastname@example.org or call me at 404-433-4565. I will be happy to answer any of your questions.
FHA Condo Approval Specialist
404-433-4565 Cell Phone
860-644-3772 Fax Phone
Check out my article in the latest issue of Common Interest magazine on page 19!