FHA Condo Approvals – Subjectivity in Project Approvals
In working with HUD over the years, I have noticed quite a range of strictness among the project reviewers. In fact, there is one project reviewer in a Homeownership Center (HOC) with whom I hope my files are not placed!
Different reviewers have different interpretations of HUD’s guidelines. Some of the requirements for project approval are inherently subjective, such as the financial viability. It doesn’t say that if a project has so much in reserves and posts a certain profit that it is viable. It also doesn’t say that if the HOA shows a loss and has so much in reserves that it is not acceptable.
Some of the reviewers are not as critical of pending special assessments, outstanding loans to the association or pending litigation while other scrutinize the heck out of these.
One of the more frustrating examples of this deals with Flood Maps. I worked with one project where the initial flood map shows a stream running through where a building now stands. During construction of the project, the stream was rerouted around the buildings but the flood map didn’t show this.
About 10 years ago, to avoid paying for flood insurance, a Letter of Map Amendment (LOMA) was sought from FEMA and was granted showing that the stream had been moved. The Special Flood Hazard Area due to the stream still existed but it did not intersect any of the buildings.
The project reviewer Rejected the submission for approval and placed a requirement that the project must get flood insurance – the entire project – to be paid by the Association. He claims that if a SFHA intersects any part of the project’s plat map, the entire project must get flood insurance.
The only way to remove this requirement was to request a LOMA from FEMA that removes all of the buildings from the Special Flood Hazard Area (even though it was evident from the map that none were in a SFHA.)
So, that’s what I did. It took a couple of months but FEMA issued the LOMA removing all of the structures from the SFHA and the project reviewer removed the flood insurance requirement.
I am working with another project consisting of a converted mill building and several other buildings of townhouses that were built during the conversion of the mill. The mill building is in a Special Flood Hazard Area and the HOA pays for the flood insurance for it. The other buildings are outside of the SFHA and do not have flood insurance.
The project reviewer is asking that evidence be provided demonstrating that the other units are not in a SFHA. She did not require that the entire project get flood insurance as did the reviewer in the first example. As it turns out, the HOA was already in the process of doing this.
And still a third example of this is one that was approved recently. It is evident on the flood map that Flood Zone AE exists on the project’s plat map but it is clear that it doesn’t intersect any buildings. It was approved without the reviewer requesting any further information. If the reviewer in the first example had the file, he would have required that the entire project get flood insurance or to get a LOMA from FEMA.
With these discrepancies, you can certainly understand why I sometimes cross my fingers when I send in submissions!