FHA Condo Approvals – I Wouldn’t Recommend That
This past week, I fielded a call from New Mexico from the developer of a condominium project regarding getting approved with HUD/FHA. She had run across my article about new construction and had questions for me regarding her project.
The project is in two phases and only the first phase is complete, a total of 50 units. Of those, 8 are owned by the developer and are rented to tenants. This means that she owns more than 10% of the units and the project is not approvable.
She then tells me that technically the 8 units are owned by three different legal 
entities but that the entities all have the same principals.
How would HUD know that they are owned by the same people?
My answer was that it probably wouldn’t. I have never had HUD ask who the principals are of the entities that own the non-owner occupied units.
However, one of the forms that must be completed is Appendix A, which is called a “Project Certification”. On it, the signer is certifying that the project meets HUD’s guidelines for approval.
Knowing that the project does not meet HUD’s requirements because the same people own more than 10% of the units and signing the certification could be considered as fraud.
My question to the developer was “if something went wrong in the future and you went bankrupt, HUD will launch an investigation. How would HUD view this situation if it uncovered that the three entities were owned by the same people?”
We agreed that it could be seen as fraud and decided not to pursue the approval until the project composition had changed.
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